UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB
(Mark One)
   [ X ]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
           For the fiscal year ended   September 30, 2000
                                     ---------------------------------

   [   ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
           For the transition period from                  to
                                          ------------------------------------

                         Commission file number 1-14072

                             PEN INTERCONNECT, INC.
        (Exact name of small business issuer as specified in its charter)

UTAH                                          87-0430260
(State or other  jurisdiction of     (I.R.S. Employer Identification No)
incorporation or organization)

                      1601 Alton Parkway, Irvine CA.       92606
               (Address of Principal Executive Offices) (Zip Code)

                                 (949) 798-5800
                           (Issuer's telephone number)

         Securities registered under Section 12(b) of the Exchange Act:
                     Common Stock, par value $0.01 per share
                              Common Stock Warrants

           Check  whether the issuer (1) filed all reports  required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.

                                                         Yes X No
                                                            ---  -

           Check if there is no disclosure  of delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. check

           State issuer's revenues for its most recent fiscal year. Discontinued
operations.  The Company  disposed of all its' operations and had no revenue for
the year.

           As of December 22, 2000, there were 27,596,946 shares of the Issuer's
common stock,  par value $0.01,  issued and  outstanding.  The aggregate  market
value of the  Issuer's  voting  stock held by  non-affiliates  of the Issuer was
approximately $855,505 at the closing quotation for the Issuer's common stock of
$0.031 December 22, 2000.

                       DOCUMENTS   INCORPORATED  BY  REFERENCE  See  Item  13  -
                 Exhibits and reports on form 8-K


<PAGE>

                                   FORM 10-KSB

                             PEN INTERCONNECT, INC.

                                Table of Contents

                                                                            Page

      PART I

      1.   Description of Business                                             3

      2.   Description of Property                                             4

      3.   Legal Proceedings                                                   5

      4.   Submission of Matters to a Vote of Security Holders                 5

      PART II

      5.   Market for Common Equity and Related Stockholder Matters            6

      6.   Management's Discussion and Analysis or Plan of Operation           6

      7.   Financial Statements                                                8


      PART III

      9.   Directors, Executive Officers, Promoters and Control Persons;
               Compliance With Section 16(a) of the Exchange Act               8

      10.   Executive Compensation                                             8

      11.   Security Ownership of Certain Beneficial Owners and Management     9

      12.   Certain Relationships and Related Transactions                    11

      13.   Exhibits and Reports on Form 8-K                                  12

      Signatures                                                              13


<PAGE>


                                     PART I


       ITEM 1.  DESCRIPTION OF BUSINESS

      FORWARD-LOOKING   STATEMENTS.   This  annual   report   contains   certain
      forward-looking  statements  within  the  meaning  of  section  27A of the
      Securities  Act of 1933,  as amended,  and  section 21E of the  Securities
      Exchange Act of 1934, as amended, that involve risks and uncertainties. In
      addition,  the  Company  may from time to time  make oral  forward-looking
      statements.  Actual  results  are  uncertain  and may be  impacted by many
      factors.  In particular,  certain risks and uncertainties  that may impact
      the accuracy of the  forward-looking  statements with respect to revenues,
      expenses and  operating  results  include  without  limitation;  cycles of
      customer orders,  general economic and competitive conditions and changing
      consumer trends,  technological  advances and the number and timing of new
      product  introductions,  shipments of products and components from foreign
      suppliers,  and changes in the mix of products ordered by customers.  As a
      result,  the actual results may differ  materially from those projected in
      the forward-looking statements.

      Because of these and other factors that may affect the Company's operating
      results,  past financial performance should not be considered an indicator
      of future  performance,  and investors should not use historical trends to
      anticipate results or trends in future periods.

      (A) BUSINESS DEVELOPMENT

      General

      Pen is at present a fully reporting public shell company, which is looking
      for a merger or acquisition of new technology.

      Historically,  the Company  developed  and  produced  on a turnkey  basis,
      contract manufacturing  solutions for original equipment  manufacturers in
      the  computer,  telecommunications,  electronic  instrument,  medical  and
      testing equipment industries.

      Summary of Current Year Events and Subsequent Events

      Since the end of FY 1999,  Pen has gone  through  substantial  changes and
      problems caused by a default notice from our bank, due to one of our major
      customers going into  receivership  and leaving Pen with over $1.5 million
      in accounts  receivable  and  inventory.  In February  2000, Pen sold its'
      PowersStream  division  to Lund  Engineering  of  Orem,  Utah for cash and
      notes. Lund took over the assets and debts of PowerStream,  which paid off
      PowerStream's obligations to Finova which also owns the notes through its'
      foreclosure actions.

      During the last six (6) months of FY 2000,  Pen  focused on  completing  a
      merger and  reducing  its' debt through a stock for debt program with its'
      vendors.  Seventy-six  (76) percent of the vendors  agreed to the program,
      thus reducing Pens' outstanding vendor debt from $3.2 million to $689,541.
      Pen issued 761,747 shares of unregistered common stock.

      For all of FY 99 Pen  operated  two  divisions:  1) the  InCirT  division,
      located in Irvine, California, providing assembly and testing services for
      electronic  circuit boards;  and 2) the PowerStream  division,  located in
      Orem, Utah,  designing and  manufacturing  custom power supplies,  battery
      chargers and UPS systems. In September 1999, Pen completed the sale of the
      MotoSat division to a company controlled by James Pendleton,  Pen's former
      Chairman and CEO. The sale did not generate cash  proceeds but  eliminated
      monthly  operating  losses   associated  with  MotoSat.   All  assets  and
      liabilities of the MotoSat  division were  transferred to Mr.  Pendleton's
      company in exchange for any future  obligations  to make payments  under a
      deferred compensation feature in Mr. Pendleton's  employment contract. The
      transfer of the MotoSat  division to Mr.  Pendleton  resulted in a loss to
      the Company of approximately $68,000.

      In October of 1999 the Company  received  notice  from its primary  lender
      (Finova) that they were placing the Company's  loan in default  status for
      non-compliance with loan covenants. The Company was originally given until
      December 18, 1999 to pay off the loan balance.
      Finova  extended the  deadline to February  28, 2000 but no other  lending
      arrangements  or  definitive  agreements to sell the Company or any of its
      divisions were made. In March 2000,  Finova caused a foreclosure of all of
      Pens' assets as a result of the default notice not being  satisfied.  This
      left Pen as only a fully  reporting  public shell company  without assets,
      nor operating divisions.

                                        3

<PAGE>


(B)  BUSINESS OF ISSUER

(1) Principal Products and Services

With the disposition of the net assets of our historical divisions,  the Company
currently  has no  products or  services.  The  Company is  currently  seeking a
strategic merger with another operating company that could bring new opportunity
assets into Pen.

(2) Business Strategy

In order to re-start our  business,  we will have to acquire a business or merge
with another company that we believe is complementary. To successfully implement
this strategy, we must identify suitable acquisition  candidates,  acquire these
candidates  on acceptable  terms,  integrate  their  operations  and  technology
successfully  and  maintain  the  goodwill  of the  acquired  business  and  our
shareholders.  We may  fail in our  efforts  to  implement  one or more of these
tasks.  Moreover,  in  pursuing  acquisition  opportunities,  we may compete for
acquisition targets with other companies with similar growth strategies. Some of
these  competitors may be larger and have greater  financial and other resources
than we do. Our future  will be  materially  and  adversely  affected  if we are
unable to manage future or acquisition-based growth effectively.

(3) Employees

Our  success is  dependent,  in part,  upon our  ability  to attract  and retain
qualified management and technical personnel. Competition for these personnel is
intense,  and we will be  adversely  affected  if we are unable to  attract  key
employees.

ITEM 2.  DESCRIPTION OF PROPERTY FACILITIES

In February 1999, the Company's  corporate  offices moved into a building leased
by its' InCirT  division.  After the Company was  foreclosed on by its' bank, we
were able to negotiate a month-to-month  rental agreement with InCirT's landlord
for  approximately  2000  square  feet  in an  industrial  building  in  Irvine,
California.

                                        4

<PAGE>



ITEM 3.  LEGAL PROCEEDINGS

1.       On October 28, 1999 Color Savvy  Systems,  Ltd.,  filed suit to recover
         $165,750 in past due uncontested  vendor  obligations.  On February 16,
         2000, Color Savvy obtained a judgment against the Company for $165,750.
2.       On  February  15,  2000,  Amistar  Corporation  filed suit  against the
         Company to recover $95,733 in uncontested past due vendor  obligations.
         As of this writing,  Amistar has accepted the Company's  stock for debt
         offer.
3.       On March 21, 2000,  Interworks  Computer Products,  Inc., filed suit to
         recover $35,771 in past due uncontested vendor obligations.
4.       On July 22, 2000,  Force  Electronics  filed suit to recover $68,816 in
         past due  uncontested  vendor  obligations,  and obtained a judgment on
         September 15, 2000.
5.       Control  Design  Supply/Nedco  filed suit to recover $6,788 in past due
         uncontested vendor obligations.
6.       On March 20, 2000,  DHL Airways Inc.  obtained a judgment in the amount
         of $3,868 for past due uncontested vendor obligation.

      On November 15,  1999,  Alan L.  Weaver,  former CEO of Pen  Interconnect,
      Inc.,  obtained a judgment  against  the Company in the amount of $135,300
      for breach of a settlement  agreement relative to Mr. Weavers'  employment
      agreement  with the  Company.  The  Company  has  reserved  $135,300  as a
      contingent liability as of September 30, 2000 for this agreement.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 There were no matters voted on by the shareholders in the fourth quarter.

                                        5

<PAGE>
                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

Our common stock and warrants  have been traded on the OTC Bulletin  Board since
they  were  de-listed  from  the  National  Association  of  Securities  Dealers
Automated  Quotation  system as of March 30,  1999.  They are  traded  under the
symbol  "PENC:OB" for the common stock and "PENCW" for the warrants.  The common
stock and  warrants  were  first  publicly  traded on  November  17,  1995.  The
following  table sets forth the range of high and low bids for our common  stock
for the last three years.

                                          High             Low
Fiscal Year 2000-Quarter Ended
September 30, 2000                         $0.30            $0.17
June 30, 2000                               0.36             0.18
March 31, 2000                              0.55             0.20
December 31, 1999                           0.53             0.25

Fiscal Year 1999-Quarter Ended
September 30, 1999                         $0.81            $0.52
June 30, 1999                               1.19             0.78
March 31, 1999                              2.00             0.72
December 31, 1998                           2.50             0.77

Fiscal Year 1998 Quarter Ended
September 30, 1998                         $2.22            $0.81
June 30, 1998                               3.09             1.88
March 31, 1998                              3.19             2.50
December 31, 1997                           3.13             1.88

On  December  22,  2000 the closing  quotation  for the common  stock on the OTC
Bulletin  Board was  $0.031 per  share.  As of  December  22,  2000,  there were
27,596,946 shares of common stock issued and outstanding,  held by approximately
1,350   shareholders,   including  several  holders  who  are  nominees  for  an
undetermined number of beneficial owners.

On December  22,  2000,  the closing  quotation  for the warrants was $0.016 per
warrant.  The Company extended the public warrants for one more year to November
17, 2001 as they were to expire on November 17, 2000.  As of September 30, 2000,
there were  issued and  outstanding  public and  private  warrants  to  purchase
6,420,453 shares of the Company's common stock.

The trading  volume of the common  stock and warrants of the Company is limited,
creating  significant  changes  in the  trading  price of the  common  stock and
warrants  as a result of  relatively  minor  changes in the  supply and  demand.
Consequently,  potential  investors should be aware that the price of the common
stock and  warrants in the  trading  market can change  dramatically  over short
periods  as a result  of  factors  unrelated  to the  operations,  earnings  and
business activities of the Company.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following  discussion and analysis provides certain  information,  which the
Company's  management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition for the fiscal years
ended  September 30, 2000 and 1999.  This discussion and analysis should be read
in conjunction with the Company's financial statements and related footnotes.

Results of Operations

Net sales:  There were no sales from  continuing  operations for the years ended
September  30, 2000 and 1999.  All operating  divisions  were disposed of during
1999 and 2000,  and all  operating  activity was  reclassified  as  discontinued
operations.  Since March 2, 2000, the Company decided to maintain its' situation
as a  reporting  public  company,  and to reduce  its' debt in order to make the
Company attractive to private companies that would want to use Pen to go public.
This  approach  would  be a  major  step  to  possibly  help  to  maintain  some
shareholder value in the Company's stock price.

The  Company  did enter  into a Letter of Intent to  reverse  merge with a small
private .com company, perFORMplace.com,  in the entertainment services business.
A definitive  agreement was signed in late August 2000 with the intent to obtain
shareholder ratification at the next shareholders' meeting. However, on November
8, 2000,  before the  meeting  could be held,  perFORMplace.com  terminated  the
merger.  This caused a serious drop in the Company's stock price and the need to
go back out to seek a new merger partner or acquisition.

Since  the  disposition  of the net  assets  and  operations  of our  historical
operations,  the  Company  has  reduced  its'  staff  to two  employees  and one
part-time financial consultant.

Cost of Sales

Not applicable.

                                        6
<PAGE>


Operating Expenses

Since the  foreclosure on the assets and the sale of its'  operating  divisions,
the  operating  costs of the Company  have been kept to a minimum,  with minimal
employees  (2),  limited  travel  and  expenses.   As  a  result,   general  and
administrative expenses decreased from $2,699,526 to $1,733,596, a net change of
36%.

Depreciation  decreased  $107,172 from 1999 to 2000. Most of the Company's fixed
assets were disposed of during 2000.

Interest  expense  decreased   $232,327  during  2000,   primarily  due  to  the
foreclosure  of the assets of its' InCirT  division,  and the  resulting  affect
against the Company's line of credit.

The Company  recorded a $320,500  loss from  impairment  due to the write-off of
advances made to a potential merger candidate.  Impairment losses during 1999 of
$724,959, resulted from the closure of two of its' divisions. The primary source
of funds was through the  occasional  exercise of warrants  and options so as to
pay the necessary legal and accounting  bills as related to the several lawsuits
and the SEC reporting requirements as well as the limited payroll.

Other Income/Expenses

The  Company  recorded  a  $135,300  loss  from a  lawsuit  brought  by a former
executive of the Company during 2000.

Losses  from  discontinued   operations  decreased  to  $497,827  in  2000  from
$5,695,148 in 1999.  The Company  disposed of two divisions  during 1999 and the
remaining two divisions early in 2000.

Losses on the disposal of these operating divisions decreased from $1,575,497 in
1999 to $776,384 in 2000 as the Company disposed of its' two remaining divisions
during 2000.

Extraordinary Income

The Company recorded a gain from  extinguishments  of debt of $2,018,547  during
2000 resulting from the conversion of vendor payables to equity.

Net Loss and Loss Per Share

Net loss and loss per share.  Net losses  decreased to  $1,891,199  or $0.10 per
common share in fiscal year 2000 from  $12,014,791  or $1.82 per common share in
fiscal year 1999; a decrease of $10,123,592  or $1.72 per share.  This decreased
loss per common share resulted  primarily from the  discontinuance of operations
of the Company due to the foreclosure by the bank.

Liquidity and Capital Resources

The Company had negative  working  capital at September  30, 2000 of  $1,777,914
compared to a negative working capital of $1,811,105 at September 30, 1999 for a
decrease in working capital

of $166,809.  The decrease was due to the  foreclosure on the Company's  assets,
the sale of its'  divisions,  thus leaving only minimal costs of a few employees
and limited furniture.

During fiscal 2000 Pen continued to experience  cash flow problems.  For most of
fiscal 1999, the market price of Pen's stock was sufficient to raise  additional
funds to support the negative cash flow from  operations.  Pen's stock price has
continued  to decline  since Pen's  securities  were  de-listed  from the NASDAQ
National Market in March of 1999.

In March 2000, because of Pens' inability to clear the default notice, our bank,
Finova  Capital  caused  a  pre-packaged  foreclosure  of all of  Pens'  assets,
including the take-over of our largest division,  InCirT, which was subsequently
sold to ADTI, a subsidiary of Comtel  Holdings,  Inc.  Since that time,  Pen has
maintained its' fully reporting  public status in an attempt to merge with a new
asset/company that was looking to go public via a reverse merger.

Additional  capital  infusions are  necessary to help the Company  continue its'
operations at this time and the investors which purchased the preferred stock in
FY99 have been willing to continue some limited funding to assist the Company in
its' search for a merger partner or acquisition of new assets. However, there is
no guarantee  that this will  continue for any sustained  period.  If Pen cannot
raise additional capital, Pen may have to seek bankruptcy protection.

In February  2000,  Pen sold its'  PowerStream  division to Lund  Engineering or
Orem, Utah for cash and notes. Lund took over the assets and debt of PowerStream
which paid off its' obligations to Finova, which also owns the note through its'
foreclosure actions.

In September  1999, Pen completed the sale of the MotoSat  division to a company
controlled by James  Pendleton,  Pen's former Chairman and CEO. The sale did not
generate cash proceeds but eliminated  monthly  operating losses associated with
MotoSat.  All assets and liabilities of the MotoSat division were transferred to
Mr. Pendleton's  company in exchange for Mr. Pendleton's  agreement to waive any
claim to post  employment,  deferred  compensation or retirement  benefits.  The
transfer of the  MotoSat  division  to Mr.  Pendleton  resulted in a loss to the
Company of approximately $68,000.

                                        7
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS

The financial statements and supplementary data are included beginning at page A

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE

Not applicable.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors and Executive Officers.

The Company's  directors and executive  officers,  and their respective ages and
positions  with the Company,  are set forth below in tabular form.  Biographical
information on each person is set forth following the tabular information. There
are no family relationships  between any of the Company's directors or executive
officers.  The  Company's  board of directors  is  currently  comprised of three
members,  each of whom is elected for a term of one year. Executive officers are
chosen by and serve at the discretion of the Board of Directors.

      Name                    Age               Position

      Stephen J. Fryer         62               Chairman of the Board, Chief
                                                Executive Officer
                                                And Principal Accounting
                                                Officer

      Milton Haber             76               Director


      Brian Bonar              52               Director

      Stephen  J.  Fryer has served as Chief  Executive  Officer of the  Company
      since 1999 and as a  director  of the  Company  since  1997.  He served as
      Senior Vice  President of Sales and Marketing from October 1996 to October
      1997.   From  1989  to  1996,   Mr.  Fryer  was  a  principal  in  Ventana
      International,  Ltd.,  an Irvine,  California  based  venture  capital and
      private  investment  banking firm. Mr. Fryer graduated from the University
      of  Southern  California  in 1960 with a  Bachelors  Degree in  Mechanical
      Engineering and has spent over twenty-eight years in the computer business
      in the United States, Asia and Europe.

      Milton Haber has been the CFO of Airline Management Corporation since 1996
      and is a private investor. From 1949 through 1983 Mr. Haber was a business
      consultant,  small  business  owner and a private  investor.  He  attended
      Brooklyn College from 1946 through 1948 after serving in the United States
      Air Force during World War II. Mr.  Haber  joined the  Company's  Board of
      Directors in February 1998.

      Brian Bonar was  appointed a director of the Company on November 30, 1999.
      Mr. Bonar  currently  serves as CEO and President of Imaging  Technologies
      Corporation  (Itec) and has held this position since April 1998.  Prior to
      his appointment as CEO of Itec, Mr. Bonar served in other  capacities with
      Itec since August 1992.  From 1991 to 1992 Mr. Bonar was Vice President of
      Worldwide Sales and Marketing for Bezsier Systems,  Inc. From 1990 to 1991
      he was  Worldwide  Sales  Manager for Adaptec,  Inc. From 1988 to 1990 Mr.
      Bonar was Vice  President of Sales and Marketing  for Rastek  Corporation.
      From  1984 to 1988  Mr.  Bonar  was  employed  as  Executive  Director  of
      Engineering  at QMS,  Inc.  Prior to these  appointments,  Mr.  Bonar  was
      employed by IBM, U.K. Ltd. for approximately 17 years.

      Compliance with Section 16(a) of the Securities Exchange Act of 1934.

      Section 16(a) of the  Securities  Exchange Act of 1934,  and the rules and
      regulations  promulgated  thereunder,   require  the  Company's  executive
      officers and  directors,  and persons who  beneficially  own more than ten
      percent of a registered class of the Company's equity securities,  to file
      reports of ownership  and changes in  ownership  with the  Securities  and
      Exchange  Commission and to furnish the Company with copies thereof. It is
      our understanding that these reports have been filed on a timely basis.

       ITEM 10.  EXECUTIVE COMPENSATION

      The  following  table  shows the  compensation  paid by the Company to its
      current Chairman and Chief Executive Officer, and the Company's other most
      highly paid executive officer.

      None of the  other  executive  officer's  total  annual  salary  and bonus
      exceeded $100,000 for the years presented.

                           Summary Compensation Table

                               Annual Compensation
      Name and Principal        Fiscal Year       Salary          Bonus

      Stephen J. Fryer          2000             $148,802        $ 4,116
      President & CEO           1999              139,000         17,304
                                1998               96,000         12,000

      Jim Pendleton (1)         1999              139,666              0
      Chairman/CEO              1998              129,000              0

      Mehrdad Mobasseri (1)     1999               96,000         89,282
      President-InCirT          1998               83,999


      Alan Weaver (1)           1999              100,000         30,881
      Vice President            1998              120,000         32,432

o        The tables above do not include  certain  insurance,  the use of a car,
         and other personal  benefits,  the total value of which does not exceed
         $50,000 or 10% of such person's salary and bonus.

(1) - All resigned in 1999/2000.

                                        8
<PAGE>



                      Option/SAR Grants in Fiscal Year 2000

<TABLE>
<CAPTION>

                      Number of Securities Percent of Total
                                        Underlying Options    Options Granted to    Exercise
                                             Granted         Employees in Fiscal    Price per    Expiration
                Name                                              Year 2000           Share         Date
      ------------------------------- --------------------- --------------------- ------------ --------------
<S>                                          <C>                       <C>            <C>        <C>
      Stephen J. Fryer                       300,000                   92%            $0.30       March 2003

                                             300,000                   92%             $0.22      June 2003

</TABLE>


                    Aggregated Option/SAR Exercises in Fiscal
                   Year 2000 and Fiscal Year End Option Values

<TABLE>
<CAPTION>
                                                                                                    Value of
                                                                              Number of           Unexercised
                                                                              Securities          In-the-Money
                                                                              Underlying       Options at Fiscal
                                                                         Unexercised Options        Year End
                                 Shares Acquired
                                    on Exercise                             Exercisable /        Exercisable /
                                                                             Unexercised          Unexercised
                 Name                                Value Realized
      --------------------------- ---------------- --------------------- -------------------- -------------------
<S>                                      <C>          <C>                <C>                        <C>
      Stephen J. Fryer                  -0-               None           1,092,500/1,092,500         $0.00
</TABLE>


      ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
      AND MANAGEMENT

      The  following  table  sets  forth the  number of shares of the  Company's
      common  stock  beneficially  owned as of September  30, 2000,  (i) by each
      person who is known by the Company to own beneficially more than 5% of the
      Company's common stock, (ii) by each director and director nominee,  (iii)
      by  each  of the  Company's  named  executive  officers,  and  (iv) by all
      directors,  director  nominees  and  executive  officers,  as a group,  as
      reported  by  each  such  person.   Unless   otherwise   indicated,   each
      stockholder's address is c/o the Company, 1601 Alton Parkway,  Irvine, CA.
      92606.


                                        9


<PAGE>


<TABLE>
<CAPTION>
                                              Amount and Nature  Amount Issuable on    Percentage of
           Name and Address of Beneficial    of Beneficial Owner     Exercise of    Outstanding Common
                         Owner                                     Options/Warrants         stock
      -------------------------------------- ------------------- ------------------ ------------------

      Directors and Executive Officers
<S>                                                  <C>               <C>                   <C>
      Stephen J. Fryer                               1,092,500         1,092,500             3.83

      Milton Haber                                     162,222           162,222              .56

      Brian Bonar                                      150,000           150,000              .52

      AMRO International, S.A (1)                    3,905,727         3,905,727             13.7
      Grossmunster Platz 26
      Zurich, Switzerland

      Austost Anstalt Schaan (1)                     1,952,863         1,952,863             6.85
      Landstrasse 163
      Vaduz, Liechenstein

      Balmore Funds, S.A. (1)                        1,952,863         1,952,863             6.85
      Trident Chambers
      Road Town, Tortola
      British Virgin Islands

      RBB Bank AG (1)                                3,168,200         3,168,200             11.1
      Burgring 16
      Graz, Austria


      All Officers and Directors as a Group          1,404,722         1,404,700             4.93
          (3 persons)
</TABLE>

(1)       In addition to shares  issuable on exercise of  warrants,  consists of
          shares  issuable upon conversion of shares of Series A preferred stock
          and Series B preferred  stock  based on a market  price equal to $0.34
          per  share.  The terms of the Series A and  Series B  preferred  stock
          prevent the holders from converting their shares of preferred stock if
          the  conversion  would  cause the holder to be deemed  the  beneficial
          owner of more than 9.9% of Pen's common  stock,  except with the prior
          consent of the holder.

      Except as set forth above,  the Company  knows of no  beneficial  owner of
      five percent or more of the Company's  Common Stock,  and does not know of
      any  arrangement  which  may at a  subsequent  date  result in a change of
      control of the Company.

                                       10

<PAGE>


      ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The following information summarizes certain transactions,  either engaged
      in within the last two (2) years or,  proposed  to be  engaged  in, by the
      Company and the individuals described.

      During  fiscal  year 1999,  the  Company  sold its  MotoSat  division to a
      company owned by James  Pendleton who at that time was serving as Chairman
      and CEO of the  Company.  The terms of the sale were such that the Company
      would transfer all assets and  liabilities of the MotoSat  division to Mr.
      Pendleton  in  exchange  for any rights of deferred  compensation  and /or
      retirement benefits as stated in Mr. Pendleton's  employment contract with
      the Company.  The net assets of the MotoSat  division on February 1, 1999,
      the date of the sale, were $68,437.

      During FY 99, the Company had sales of $1,719,093 to Imaging  Technologies
      Corporation (Itec), of which $949,328 have been taken over by Finova under
      terms of its' foreclosure on all assets. The Company discontinued sales to
      Itec in July of 1999. In November  1999, Mr. Brian Bonar became a director
      of the Company.  Mr. Bonar is the President  and CEO of Itec.  The Company
      has  explored  acquiring  certain  assets  and  operations  of Itec but no
      agreements and commitments have been made as of the date of this report.

      Stephen J. Fryer  accepted a Directors'  position on Itec's Board in March
      2000.

      Former  officers  and board  members,  James  Pendleton  and Wayne  Wright
      reached a modified  settlement with the Company,  per their management and
      deferred income statements,  by each accepting 250,000 warrants, priced at
      $0.65 per share,  and 376,000  shares of common stock in place of monetary
      payments.

ITEM 13 - Index of Exhibits and Reports on Form 8-K

(a) Reports on Form 8-K

      No reports on Form 8-K were filed by the Company  during the three  months
ended September 30, 2000.

(b) Exhibit No.          Description

1.       Underwriter's   Warrant  Agreement   including  Form  of  Underwriter's
         Warrant,  incorporated  by  reference  to  the  Company's  Registration
         Statement filed on Form SB-2, SEC File No. 33-96444.

3.       Articles of Incorporation and By-Laws, incorporated by reference to the
         Company's  Registration  Statement  filed  on Form  SB-2,  SEC File No.
         33-96444

4.1      Certificate of Amendment creating Series A Convertible  Preferred Stock
         as amended,  as filed  February 10, 1999. See Exhibit to report on Form
         8-K filed on February 17, 1999.

4.2      Certificate of Amendment creating Series B Convertible  Preferred Stock
         as amended.

10.4     Form of Warrant between the Registrant and JW Charles Securities, Inc.,
         BMC  Bach  International  Ltd.,  Gordon  Mundy,  Louis  Centofanti  and
         Heracles  Holdings.  See Registration  Statement filed on Form S-3, SEC
         File No. 333-60451.

10.5     Form of 1995 Stock Option Plan.  See  Registration  Statement  filed on
         Form SB-2, SEC File No. 33-96444.

10.7     Loan and Security Agreement between FINOVA and the Company. See Exhibit
         to Report on Form 10-KSB, dated September 30, 1997.

10.8     Employment  Agreement  between  Stephen J. Fryer and the  Company.  See
         Exhibit to Report on Form 10-KSB, dated September 30, 1997.

10.11.1  Finder's  Agreement  between the Registrant and JW Charles  Securities,
         Inc., dated June 2, 1998. See Registration Statement filed on Form S-3,
         SEC File No. 333-60451.

10.12    Convertible Preferred Stock and Warrant Purchase Agreement between Pen,
         RBB  Bank  AG,  Austost  Anstalt  Schaan,  Balmore  Funds  SA and  AMRO
         International, SA dated as of February 12, 1999. See Exhibits to Report
         on Form 8-K filed February 17, 1999.

                                       11
<PAGE>


10.13    Amendment   in  Total  and   Complete   Restatement   of  the  Deferred
         Compensation Salary Continuation Plan and Employment  Agreement between
         Pen and James S. Pendleton, dated as of July 23, 1999.

10.14    Amendment   in  Total  and   Complete   Restatement   of  the  Deferred
         Compensation Salary Continuation Plan and Employment  Agreement between
         Pen,  Wayne R. Wright,  and Rent A  Profession,  dated as of October 1,
         1999.

10.15    Change in Pen's  Auditors from Grant  Thornton LLP to Berg & Associates
         as of March 7, 2000, and FINOVA's foreclosure action on Pen's assets to
         recover its' loans to the  Company.  See Exhibits to Report on Form 8-K
         filed on March 14, 2000, SEC File No. 1-14072.

10.16    Amended Registration Rights Agreement for registration of Common stock,
         Form S-B2 filed February 16, 2000. Registration Statement # 333-79631.

10.17    1999 Consulting  Services  Agreement and Compensation  Plan for outside
         consultants  (Incorporated by reference to Form S-8, filed September 3,
         1999.

10.18    2000 Consulting  Services  Agreement and compensation  plan for outside
         consultants. (Incorporated by reference to Form S-8 filed May 17, 200.

27.         Financial data schedule.

                                       12


<PAGE>


                                   Signatures

      In  accordance  with Section 13 or 15(d) of the Exchange  Act, the Company
      caused  this  report  to be  signed  on its  behalf  by  the  undersigned,
      thereunto duly authorized.


      Date:   January 16, 2001           PEN INTERCONNECT, INC.



                                        By:_/s/ Stephen J. Fryer
                                                      Stephen J. Fryer
                                                      Chairman, CEO and
                                                      Chief Accounting Officer

      In accordance  with the Exchange Act, this report has been signed below by
      the following  persons on behalf of the Company and in the  capacities and
      on the dates indicated below.



      Date:  January 16, 2001            By:/s/ Stephen J. Fryer
                                              Stephen J. Fryer
                                              Chairman, CEO and
                                              Chief Accounting Officer

      Date:  January 16, 2001            By:/s/ Brian Bonar
                                              Brian Bonar
                                              Director


      Date:  January 16, 2001            By:/s/ Milton Haber
                                              Milton Haber
                                              Director

                                       13

<PAGE>


                             PEN INTERCONNECT, INC.

                          AUDITED FINANCIAL STATEMENTS

                               For the Years Ended
                           September 30, 2000 and 1999


<PAGE>


                             PEN INTERCONNECT, INC.

                          Audited Financial Statements

                 For the Years ended September 30, 2000 and 1999






                                                                            Page


Report of Pohl, McNabola, Berg & Co. LLP, Independent Auditors
         On the September 30, 2000 Financial Statements                   1

Report of Grant Thornton LLP, Independent Auditors
         On the September 30, 1999 Financial Statements                   2


Balance Sheets                                                        3 - 4


Statements of Operations and Retained Earnings                        5 - 6


Statements of Stockholders' Deficit                                       7


Statements of Cash Flows                                             8 - 11


Notes to Financial Statements                                       12 - 44


<PAGE>


  Report of Independent Auditors on the September 30, 2000 Financial Statements



Board of Directors
Pen Interconnect, Inc.
Irvine, California

We have audited the accompanying balance sheet of Pen Interconnect, Inc., a Utah
Corporation,  as of September 30, 2000, and the related statement of operations,
stockholders'  equity (deficit),  and cash flows for the year then ended.  These
financial   statements  are  the   responsibility   of  the  management  of  Pen
Interconnect,  Inc.  Our  responsibility  is to  express  an  opinion  on  these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  based on our audit, the financial  statements referred to above
present  fairly,  in  all  material  respects,  the  financial  position  of Pen
Interconnect,  Inc. as of September 30, 2000,  and the results of its operations
and its cash  flows  for the year  then  ended,  in  conformity  with  generally
accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
the Company has a stockholders'  deficit of $1,977,914 as of September 30, 2000,
and its current  liabilities  exceeded its current assets by  $1,977,914.  These
factors, among others, as discussed in Note 2 to the financial statements, raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's plans in regards to these matters are also described in Note 2. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


                                /s/Pohl, McNabola, Berg & Company LLP
                                San Francisco, California
                                December 28, 2000

                                        1

<PAGE>


  Report of Independent Auditors on the September 30, 1999 Financial Statements



Board of Directors and Stockholders
Pen Interconnect, Inc.

We have audited the  accompanying  balance sheet of Pen  Interconnect,  Inc., (a
Utah  Corporation),  as of September  30, 1999,  and the related  statements  of
operations,  stockholders' deficit, and cash flows (prior to the restatement for
discontinued  operations  described  in Note 11) for the year then ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Pen Interconnect,  Inc. as of
September 30, 1999, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.

The accompanying 1999 financial  statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
and,  as of  September  30,1999,  the  Company  has a  stockholders'  deficit of
$1,810,128,   and  its  current  liabilities  exceeded  its  current  assets  by
$3,197,941  (prior to the restatement for discontinued  operations  described in
Note 11). These factors,  among others,  as discussed in Note 2 to the financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 2. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.


                                           /s/ Grant Thornton LLP
                                           Salt Lake City, Utah
                                           December 23, 1999

                                        2


<PAGE>


                             Pen Interconnect, Inc.
                                 Balance Sheets
                           September 30, 2000 and 1999


                                                ASSETS

<TABLE>
<CAPTION>
                                                                      2000                 1999
                                                              --------------------- --------------------
Current assets:
<S>                                                            <C>                   <C>
   Cash and cash equivalents                                   $            9,319    $         176,299
   Current maturities of notes receivable                                       -              725,112
   Prepaid expenses                                                             -              103,376
   Assets from discontinued operations                                      9,605            8,523,631
                                                              --------------------- --------------------

       Total Current Assets                                                18,924            9,528,418
                                                              --------------------- --------------------

Property and equipment:
   Computer equipment                                                       1,028                1,028
   Accumulated depreciation                                                  (154)                 (51)
                                                              --------------------- --------------------

       Total property and equipment                                           874                  977
                                                              --------------------- --------------------

          Total assets                                         $           19,798    $       9,529,395
                                                              ===================== ====================
</TABLE>

                                   (continued)

                 See accompanying notes to financial statements

                                      - 3 -

<PAGE>


                             Pen Interconnect, Inc.
                           Balance Sheets (continued)
                           September 30, 2000 and 1999



                                     LIABILITIES AND STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                                                            2000                   1999
                                                                    ---------------------- ---------------------
Current Liabilities:
<S>                                                                  <C>                    <C>
   Line of credit                                                    $                -     $       4,436,562
   Accounts payable                                                             200,752               311,300
   Accrued liabilities                                                          724,647               360,832
   Convertible debentures                                                       150,000                     -
   Notes payable                                                                 56,648               308,189
   Liabilities from discontinued operations                                     864,791             5,922,640
                                                                    ---------------------- ---------------------

       Total current liabilities                                              1,996,838            11,339,523

   Stockholders deficit:
   16% Convertible preferred stock, $0.01 par value,
      authorized 5,000,000 shares
       Series A, issued and outstanding, 130 shares in 2000 and 1800
       shares in 1999                                                                 1                    18
       Series B, issued and outstanding, 926 shares in 2000 and 1000
       shares in 1999                                                                 9                    10
   Common stock, $0.01 par value, authorized 50,000,000
       shares issued and outstanding 27,596,946 shares in
       2000 and 9,638,114 shares in 1999                                        275,969                96,381
   Additional paid in capital                                                19,282,402            17,447,876
   Accumulated deficit                                                      (21,535,421)          (19,354,413)
                                                                    ---------------------- ---------------------

       Total stockholders' deficit                                           (1,977,040)           (1,810,128)
                                                                    ---------------------- ---------------------

       Total liabilities and stockholders' deficit                   $           19,798      $      9,529,395
                                                                    ====================== =====================
</TABLE>


                 See accompanying notes to financial statements

                                      - 4 -


<PAGE>


                             Pen Interconnect, Inc.
                            Statements of Operations
                 For the Years Ended September 30, 2000 and 1999


<TABLE>
<CAPTION>
                                                                                          2000                    1999
                                                                                 ----------------------- -----------------------

Revenues:
<S>                                                                               <C>                      <C>
    Net revenues                                                                  $                 -      $                -
    Costs of revenues                                                                               -                       -
                                                                                 ----------------------- -----------------------
                                                                                                    -                       -
                                                                                 ----------------------- -----------------------

Sales and marketing                                                                                 -                  20,628
General and administrative expenses                                                         1,733,596               2,699,526
Depreciation                                                                                      103                 107,275
                                                                                 ----------------------- -----------------------
        Loss from operations                                                                1,733,699               2,827,429

Other expenses
    Interest expense                                                                          358,195                 590,522
    Loss on impairment                                                                        320,500                 724,959
    Loss on lawsuit                                                                           135,300                       -
    Liquidation damage waiver                                                                  86,941                       -
                                                                                 ----------------------- -----------------------
        Loss from continuing operations before income taxes                                 2,634,635               4,142,910

        Income taxes                                                                              900                 601,236
                                                                                 ----------------------- -----------------------
                Loss from continuing operations                                             2,635,535               4,744,146

        Loss from discontinued operations, net of tax of $0
             PowerStream                                                                      269,356               1,735,148
             InCirT                                                                           228,471               3,580,342
             Cable                                                                                  -                 299,720
             MotoSat                                                                                -                  79,938
                                                                                 ----------------------- -----------------------
                                                                                              497,827               5,695,148

        Loss (gain) from disposal of discontinued operations, net of
           tax of $0
             PowerStream                                                                     (186,643)                      -
             InCirT                                                                           963,027                       -
             Cable                                                                                  -               1,507,059
             MotoSat                                                                                -                  68,438
                                                                                 ----------------------- -----------------------
                                                                                              776,384               1,575,497
                                                                                 ----------------------- -----------------------

                   Total loss from discontinued operations                                  1,274,211               7,270,645
                                                                                 -----------------------    --------------------
</TABLE>
                                   (continued)

                 See accompanying notes to financial statements

                                      - 5 -

<PAGE>


                             Pen Interconnect, Inc.
                      Statements of Operations (continued)
                 For the Years Ended September 30, 2000 and 1999


<TABLE>
<CAPTION>
                                                                              2000                     1999
                                                                     ------------------------  ----------------------

<S>                                                                              <C>                    <C>
    Loss before extraordinary item                                               3,909,746              12,014,791

    Gain on extinguishment of debt                                               (2,018,547)                     -
                                                                     ------------------------  ----------------------

    Net loss                                                           $         1,891,199       $      12,014,791
                                                                     ========================  ======================




Net (income) loss per share (Note 1, 17):

    Loss before discontinued items and extraordinary item
        Basic                                                          $               0.14      $             0.67
        Diluted                                                                        0.14                    0.67

    Loss from discontinued items
        Basic                                                                          0.07                    1.02
        Diluted                                                                        0.07                    1.02

    Loss before extraordinary item
        Basic                                                                          0.21                    1.68
        Diluted                                                                        0.21                    1.68

    Gain on extinguishment of debt
        Basic                                                                         (0.11)                      -
        Diluted                                                                       (0.11)                      -

    Net loss per share
        Basic                                                          $               0.10      $             1.82
                                                                     ========================  ======================
        Diluted                                                        $               0.10      $             1.82
                                                                     ========================  ======================

    Weighted average shares used in per share calculation
        Basic                                                                   18,556,461               7,133,344
                                                                     ========================  ======================
        Diluted                                                                 18,556,461               7,133,344
                                                                     ========================  ======================

</TABLE>

                 See accompanying notes to financial statements

                                      - 6 -



<PAGE>


                             Pen Interconnect, Inc.
                       Statements of Stockholders' Deficit
                 For the Years Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                       Common Stock           Preferred Stock       Additional
                                   Shares         Amount    Shares       Amount       Paid-in      Accumulated         Total
                                                                                      Capital        Deficit
                                ------------------------------------- ------------ -----------------------------------------------
<S>                                <C>         <C>          <C>        <C>          <C>           <C>              <C>
Balance September 30, 1998         5,018,437   $    50,184         -   $        -   $ 10,890,022  $   (7,074,238)  $    3,865,968
                                ------------------------------------- ------------ -----------------------------------------------

Common stock issued upon
   conversion of subordinated
debentures                         2,092,671        20,927         -            -      1,479,073                -       1,500,000

Common stock issued upon
     exercise of warrants            523,750         5,237         -            -        387,561                -         392,798

Common stock issued upon
     exercise of options           1,260,000        12,600         -            -        365,400                -         378,000

Common stock issued as interest
    on subordinated debentures         4,089            41         -            -          7,628                -           7,669

Common stock issued
    for services                     739,167         7,392         -            -        749,095                -         756,487

Issuance of Series A Preferred
stock                                      -             -     1,800           18      1,799,982                -       1,800,000

Issuance of Series B  Preferred
stock                                      -             -     1,000           10        999,990                -       1,000,000

Dividends on Preferred stock               -             -         -            -              -        (265,384)       (265,384)

Stock options granted at below
   the fair market value of the
   stock on the date of the
grant                                      -             -         -            -        769,125                -         769,125

Net loss                                   -             -         -            -              -     (12,014,791)    (12,014,791)
                                ------------------------------------- ------------ -----------------------------------------------

Balance September 30, 1999         9,638,114        96,381     2,800           28     17,447,876     (19,354,413)     (1,810,128)
                                ------------------------------------- ------------ -----------------------------------------------


Conversion of Preferred Stock -
Series B                             411,112         4,111      (74)          (1)        (4,111)                -             (1)

Conversion of Preferred Stock -
Series A                           9,057,654        90,577   (1,670)         (17)       (90,577)                -            (17)

Common stock issued in lieu of
   preferred stock dividend
payable                              349,323         3,493         -            -         61,088                -          64,581

Compensation expense recognized
   on repricing of options and
warrants                                   -             -         -            -        339,822                -         339,822

Conversion of warrants -
Preferred
   Stock Series A into common
stock                                315,000         3,150         -            -         83,792                -          86,942

Exercise of stock options          1,150,000        11,500         -            -        254,941                -         266,441

Exercise of warrants               2,766,668        27,667         -            -        273,451                -         301,118

Common stock issued for services   1,760,193        17,602         -            -        416,372                -         433,974

Conversion of trade payables
and debt
   into common stock               1,061,747        10,617         -            -        250,655                -         261,272

Sale of common stock               1,087,135        10,871         -            -        206,843                -         217,714

Dividends on Preferred Stock               -             -         -            -              -        (289,809)       (289,809)

Stock options granted as
compensation                               -             -         -            -         42,250                -          42,250

Net loss                                   -             -         -            -              -      (1,891,199)     (1,891,199)
                                ------------------------------------- ------------ -----------------------------------------------

Balance September 30, 2000        27,596,946   $   275,969     1,056   $       10   $ 19,282,402  $  (21,535,421)  $  (1,977,040)
                                ===================================== ============ ===============================================
</TABLE>


                 See accompanying notes to financial statements

                                      - 7 -

<PAGE>


                             Pen Interconnect, Inc.
                            Statements of Cash Flows
                 For the Years Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                         2000                   1999
                                                                -----------------------  -------------------

 Increase  (decrease)  in cash and cash  equivalents
 Cash flow  from  operating activities:
<S>                                                               <C>                     <C>
      Net loss                                                    $        (1,891,199)    $    (12,014,791)
      Adjustments to reconcile net loss to net cash generated
     by
        (used in) operating activities
       Depreciation and amortization                                          90,514              503,397
       Allowance for bad debts                                                     -            1,782,001
       Allowance for note receivable                                         320,500                    -
       Allowance for obsolete inventory                                            -              (248,689)
       Deferred income taxes                                                       -              601,236
       Amortization of favorable conversion feature on
          subordinated debenture charged to interest expense                       -               98,571
       Common stock issued for services                                      433,974              756,487
       Extinguishment of debt                                              (2,018,547)                  -
       Conversion of warrants                                                 86,941                    -
       Debt conversion to common stock                                       261,272                    -
       Common stock issued for dividends payable                              64,581                    -
       Common stock issued in payment of interest                                  -                7,669
       Stock options issued for services at below the fair
       market
          value of the stock on the date of the grant and
          repricing of options                                               382,071              769,125
      Discontinued operations
       Loss on disposal of property and equipment                                  -               11,425
       Asset impairment charges                                                    -            2,598,894
       Loss (gain) on sale of divisions                                      (186,643)          1,575,497
       Loss on foreclosure of division                                       963,027                    -
     Changes in assets and liabilities
       Trade accounts receivable                                             790,429            (1,960,961)
       Inventories                                                         1,300,987               63,218
       Prepaid expenses and other current assets                               9,171                5,665
       Other assets                                                                -               65,150
       Accounts payable                                                    1,861,945            1,170,432
       Accrued liabilities                                                   (141,401)            191,133
                                                                -----------------------  -------------------

         Net cash flow generated by (used in) operating
            activities                                                     2,327,622            (4,024,541)
                                                                -----------------------  -------------------

</TABLE>

                                   (continued)


                 See accompanying notes to financial statements

                                      - 8 -

<PAGE>


                             Pen Interconnect, Inc.
                      Statements of Cash Flows (continued)
                 For the Years Ended September 30, 2000 and 1999


<TABLE>
<CAPTION>
                                                                              2000                 1999
                                                                      ---------------------  ------------------
 Cash flow from investing activities:
<S>                                                                    <C>                           <C>
        Purchase of property, equipment and leaseholds                                 -             (208,712)
        Advances to perFORMplace                                                 320,500                   -
        Issuance of notes receivable                                             (374,567)           (575,112)
        Collection on notes receivable                                                  -               6,287
        Proceeds from sale of divisions                                             75,689           1,075,000
                                                                      ---------------------  ------------------

                 Net cash generated by investing activities                         21,622           297,463
                                                                      ---------------------  ------------------

 Cash flow from financing activities:
    Issuance of preferred stock                                                       (18)          2,800,000
    Proceeds from issuance of common stock                                        217,714                   -
    Proceeds from convertible debenture                                           150,000                   -
    Net change in line of credit                                               (1,840,467)            615,249
    Principal payments on long-term debt obligations                           (1,611,010)           (883,201)
    Proceeds from bridge loans                                                          -             900,000
    Principal payments on bridge loans                                                  -            (900,000)
    Principal payments on capital leases                                                -             (57,246)
    Exercise of warrants                                                          301,117             392,798
    Exercise of stock options                                                     266,440             378,000
                                                                      ---------------------  ------------------
                                                                      ---------------------  ------------------

                 Net cash generated by (used in) financing activities          (2,516,224)          3,245,600
                                                                      ---------------------  ------------------


                Net decrease in cash and cash equivalents                        (166,980)           (481,478)
                                                                      ---------------------  ------------------

                 Cash and cash equivalents at beginning of year                   176,299             657,777
                                                                      ---------------------  ------------------

                 Cash and cash equivalents at end of year              $            9,319     $       176,299
                                                                      =====================  ==================


 Supplementary disclosures of cash flow information
     Cash paid during the year for

         Interest                                                      $          360,296     $       593,374

         Income taxes                                                  $              900     $             -

</TABLE>

                                   (continued)


                 See accompanying notes to financial statements

                                      - 9 -

<PAGE>

                             Pen Interconnect, Inc.
                      Statements of Cash Flows (continued)
                 For the Years Ended September 30, 2000 and 1999


Non-Cash Investing and Financing Activities

 Favorable Conversion Feature of Subordinated Debentures

The Company  recognized  charges related to the favorable  conversion feature of
the subordinated debentures issued during 1999. The favorable conversion feature
was recognized as a deferred charge against the subordinated  debenture  balance
with an offset  to  additional-paid-in  capital.  The  deferred  charge is being
amortized over a period  corresponding to the time restrictions on conversion of
the debentures into stock. The amortization of the favorable  conversion feature
is  recognized as interest  expense.  Recognition  of the  favorable  conversion
feature and subsequent  amortization  has resulted in an increase in interest of
$98,571 in 1999. There were no remaining debentures at September 30, 2000.

    Sale of Division

    On January 21, 2000,  the Company sold  substantially  all of the assets and
    certain  liabilities  of its  PowerStream  Division  (Note  3, 7)  noted  as
    follows:
      Cash                                                                -
      Accounts receivable, net                          $           142,017
      Inventories                                                    74,262
      Prepaid expenses                                                    -
      Note Receivable                                                 9,017
      Property, equipment and leaseholds, net                        69,229
      Accounts Payable                                             (166,661)
      Unearned revenue                                             (216,000)
      Note payable                                                  (14,820)
      Capital leases                                                 (7,998)
                                                       -----------------------
        Net liabilities transferred
                                                                       (110,954)
      Less consideration received
        Note receivable                                                  -
        Cash                                                         75,689
                                                       -----------------------

      Gain on sale of division                         $           (186,643)
                                                       =======================

    Foreclosure of Division

     On  March 3,  2000,  the  Company's  InCirT  Division  was  foreclosed  and
     substantially  all of the  assets and  liabilities  were  turned  over to a
     secured  lender  (Note  3, 7).  The  value of the  assets  and  liabilities
     transferred were as follows:
      Accounts receivable, net                            $         2,038,322
      Inventories                                                   2,875,412
      Notes receivable                                                299,662
      Property, equipment and leaseholds, net                         959,758
      Accounts payable                                             (2,614,032)
      Other debt obligations                                       (2,596,095)
                                                         -----------------------

      Loss on foreclosure of division                     $           963,027
                                                         =======================

                                   (continued)

                 See accompanying notes to financial statements

                                     - 10 -


<PAGE>
                             Pen Interconnect, Inc.
                      Statements of Cash Flows (continued)
                 For the Years Ended September 30, 2000 and 1999

Non-Cash Investing and Financing Activities (continued)

     Sale of Divisions

         On January 31, 1999, the Company sold  substantially  all of the assets
         and certain  liabilities of its Cable Division.  Assets and liabilities
         were as follows:

       Accounts receivable, net                       $          310,467
       Inventories                                               917,760
       Prepaid expenses                                           17,509
       Other assets                                               32,390
       Property, equipment, net                                1,496,459
       Capital leases                                            (42,526)
                                                   -----------------------
       Assets sold, net                                        2,732,059
       Less consideration received
         Note receivable                                         150,000
         Cash                                                  1,075,000
                                                   -----------------------
       Loss on sale of division                       $       (1,507,059)
                                                   =======================


         On September 30, 1999, the Company sold substantially all of the assets
         and liabilities of its MotoSat  Division.  Assets and liabilities  sold
         were as follows:

       Accounts receivable, net                     $          180,896
       Inventories                                             206,689
       Notes receivable                                         33,377
       Property, equipment, net                                 33,780
       Accounts Payable                                        (56,507)
       Accrued liabilities                                      (9,145)
       Other debt obligations                                 (320,652)
                                                 -----------------------
       Assets sold, net                                         68,438
       Proceeds received                                             -
                                                 -----------------------
       Loss on sale of division                     $          (68,438)
                                                 =======================

Conversion of debt and trade payables

During fiscal year 2000,  debt and trade payables in the amount of $261,272 were
converted  into  1,061,747  shares of common  stock.  During  fiscal  year 1999,
convertible debentures in the amount of $1,500,000 were converted into 2,092,671
shares of common stock.

The following is a listing of the non-cash charges to common stock during fiscal
year 2000:

Conversion of preferred stock into common stock            $                (18)
Common stock issued in lieu of dividends payable                         64,581
Conversion of warrants-preferred stock into common stock                 86,942
Common stock issued for services                                        433,974

                 See accompanying notes to financial statements

                                     - 11 -

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


1.       Organization and Summary of Significant Accounting Policies

         Organization

         Pen Interconnect,  Inc. (the Company) was incorporated on September 30,
         1985,  in the  State  of  Utah.  Through  March  3,  2000,  the date of
         foreclosure of its last remaining operating division, the Company was a
         total    interconnection    solution   provider   offering   electronic
         manufacturing  services  industry (EMSI)  manufacturing  (circuit board
         assembly)  and custom  design and  manufacturing  of battery  chargers,
         power  supplies  and  uninterrupted  power  supply  (UPS)  systems  for
         original equipment manufacturers ("OEMs") in the computer, peripherals,
         telecommunications,  instrumentation,  medical  and  testing  equipment
         industries.  Most of the Company's  sales  consisted of printed circuit
         boards. The Company's  customers  included OEMs of computers  including
         mainframes, desktops, notebooks, pens and palmtops, as well as, OEMs of
         computer  peripheral  equipment  such  as  modems,  memory  cards,  LAN
         adapters, cellular phones, faxes and printers. Other customers included
         OEMs of telecommunications, instrumentation and testing equipment.

         The Company sold three of its operating  divisions  during the last two
         years, noted as follows:

                               Division Name                  Date Sold
                         --------------------------    -------------------------
                          Cable Division               January 31, 1999
                          MotoSat                      September 30, 1999
                          PowerStream                  January 21, 2000

         On March 3, 2000 the Company and its secured asset based lender, Finova
         Capital,  entered into a voluntary  foreclosure in which all the assets
         in the Company's last remaining  division,  InCirT,  was transferred to
         Finova to satisfy the revolving credit and term loans held by the bank.

                                       12

<PAGE>

                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


1.       Organization and Summary of Significant Accounting Policies (continued)

         Organization (continued)

         During the second  quarter of FY2000 the Company  announced a change in
         its  strategic  direction in  disposing  of its contract  manufacturing
         operations  and seeking new  technologies,  with  specific  interest in
         Internet  business-to-business  activities.  On  March  29,  2000,  the
         Company  announced  the  signing  of a  letter  of  intent  to  acquire
         perFORMplace.com,  a privately  held  Internet  provider of  electronic
         business-to-business   services  to  the  entertainment   industry.  On
         November  11, 2000,  perFORMplace.com  informed the Company that it had
         decided not to pursue the merger.  The  Company is  currently  pursuing
         other strategic alternatives.


         Basis of Presentation

         The  financial  statements  include  the  corporate  operations  of Pen
         Interconnect as continuing  operations.  Operations of Cable,  MotoSat,
         PowerStream and InCirT have been disclosed as  discontinued  operations
         in the financial  statements for the years ended September 30, 2000 and
         1999.


         Cash, Cash Equivalents and Short-Term Investments

         The Company  considers  cash on hand,  cash in banks,  certificates  of
         deposits and time deposits with original  maturities of three months or
         less when purchased as cash  equivalents.  Short-term  investments  are
         investments  with original  maturity  greater than ninety days and less
         than one year.


         Inventories

         Inventories  consisted  primarily of  components  and boards,  and were
         valued  at the  lower of cost or market  (first-in,  first-out  basis).
         Costs included materials, labor, and overhead.

                                       13


<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


1.       Organization and Summary of Significant Accounting Policies (continued)

         Property and Equipment

         Property and equipment are recorded at cost. Expenditures for additions
         and major  improvements are  capitalized.  Expenditures for repairs and
         maintenance and minor  improvements are charged to expense as incurred.
         Gains or losses from  retirements  and  disposals are recorded as other
         income or expense.

         Property and  equipment are  depreciated  over their  estimated  useful
         lives.  Leasehold improvements and assets financed under capital leases
         are  amortized  over their  estimated  useful  lives or the lease term,
         whichever is shorter.  Depreciation  and  amortization  are  calculated
         using   straight-line  and  accelerated   methods  over  the  following
         estimated useful lives:

                                                                           Years
                                                               -------------
                             Production equipment                       5-6
                             Furniture and fixtures                      10
                             Transportation equipment                    10
                             Leasehold improvements                       5


         Goodwill and Other Intangibles

         The Company  capitalized as goodwill the excess  acquisition costs over
         the fair value of net assets  acquired,  in  connection  with  business
         acquisitions,  which  costs were  being  amortized  on a  straight-line
         method  over 15 years.  The  carrying  value of goodwill  was  reviewed
         periodically  based on the  undiscounted  cash  flows  of the  entities
         acquired over the remaining  amortization  period.  The Company reduced
         the carrying value of goodwill by $1,873,935 in 1999 (Note 9).

                                       14



<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


1.       Organization and Summary of Significant Accounting Policies (continued)

         Income Taxes

         The Company  utilizes the  liability  method of  accounting  for income
         taxes. Under the liability method,  deferred tax assets and liabilities
         are determined based on differences between financial reporting and tax
         bases of assets and liabilities, and are measured using the enacted tax
         rates and laws that will be in effect when the differences are expected
         to reverse.  An allowance  against deferred tax assets is recorded when
         it is more likely than not that such tax benefits will not be realized.


         Stock-Based Compensation

         The Company  accounts for its  stock-based  compensation  plan based on
         Accounting  Principles  Board ("APB")  Opinion No. 25. In October 1995,
         the Financial  Accounting Standards Board ("FASB") issued SFAS No. 123,
         "Accounting for Stock-Based  Compensation."  The Company has determined
         that it will not change to the fair value  method and will  continue to
         use APB Opinion No. 25 for  measurement  and recognition of any expense
         related to employee stock based transactions.


         Comprehensive Income

         The Company  adopted  Statement of Financial  Accounting  Standards No.
         130, "Reporting  Comprehensive  Income" ("SFAS 130"), which establishes
         standards for reporting and display of changes in equity from non-owner
         sources in the  financial  statements.  The  Company  does not have any
         components of comprehensive income in 2000 or 1999.


         Valuation of Long-lived Assets

         The Company  periodically  evaluates  the carrying  value of long-lived
         assets to be held and used,  including  intangible assets,  when events
         and  circumstances  warrant  such a  review.  The  carrying  value of a
         long-lived asset is considered impaired when the anticipated discounted
         cash flow from such asset is separately  identifiable  and is less than
         its carrying  value.  In that event, a loss is recognized  based on the
         amount by which the carrying value exceeds the fair market value of

                                       15
<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


1.       Organization and Summary of Significant Accounting Policies (continued)

         Valuation of Long-lived Assets (continued)

         the long-lived asset.  Fair market value is determined  primarily using
         the anticipated cash flows discounted at a rate  commensurate  with the
         risk  involved.  Losses  on  long-lived  assets to be  disposed  of are
         determined  in a similar  manner,  except that fair  market  values are
         reduced for the cost to dispose.


         Fair Value of Financial Instruments

         SFAS No. 107,  "Disclosure About Fair Value of Financial  Instruments,"
         requires  certain  disclosures  regarding  the fair value of  financial
         instruments. Cash and cash equivalents,  accounts receivable,  accounts
         payable  and  accrued   liabilities  are  reflected  in  the  financial
         statements  at fair value because of the  short-term  maturity of these
         instruments.   Because  of  the  unique  aspects  of  the  subordinated
         debentures   and  long-term   debt,   fair  values  cannot  readily  be
         determined.


         Revenue Recognition

         Sales are generally recorded when products are shipped or when services
         are rendered.


         Estimates

         The  preparation  of  the  financial   statements  in  conformity  with
         generally   accepted   accounting   principles   necessarily   requires
         management to make estimates and  assumptions  that affect the reported
         amounts of assets and liabilities and disclosures of contingent  assets
         and  liabilities  at the  date  of the  financial  statements  and  the
         reported  amounts of revenue and expenses during the reporting  period.
         Significant estimates include allowance for doubtful accounts and notes
         receivable,  inventory obsolescence,  estimated lives for fixed assets,
         impairment  of  goodwill  and  intangibles,  the  liabilities  posed by
         lawsuits and  collection of  contingent  assets.  Actual  results could
         differ from these estimates.

                                       16


<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


1.       Organization and Summary of Significant Accounting Policies (continued)

         Advertising

         The  Company  did not  incur  any  significant  amount  of  advertising
         expenses.


         Earnings (Loss) Per Share

         Basic earnings per common share are computed using the weighted average
         number of common  shares  outstanding  during the period.  Dividends to
         preferred  shareholders  are  deducted  to  arrive at  earnings  (loss)
         available to common shareholders.

         Diluted  earnings per common share  incorporate the incremental  shares
         issuable upon the assumed exercise of stock options and warrants.

         All of the Company's  stock options and warrants were excluded from the
         calculation   of  diluted   earnings   per  share   because  they  were
         antidilutive.


         Segment and Geographic Information

         The Company has adopted SFAS No. 131, "Disclosures about Segments of an
         Enterprise and Related  Information." SFAS 131 requires  enterprises to
         report   information  about  operating  segments  in  annual  financial
         statements  and  selected  information  about  reportable  segments  in
         interim financial reports issued to shareholders,  on the basis that is
         used internally for evaluating segment  performance and deciding how to
         allocate  resources  to segments.  It also  established  standards  for
         related  disclosures about products and services,  geographic areas and
         major   customers.   Segment   disclosures   have  been   provided  for
         discontinued operations (Note 11).


         Research and Development

         Researh and development costs are expensed as incurred.

                                       17
<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


1.       Organization and Summary of Significant Accounting Policies (continued)

         Recent Pronouncements

         In June 1998,  the Financial  Accounting  Standard  Board (FASB) issued
         Statement  No. 133,  "Accounting  for the  Derivative  Instruments  and
         Hedging  Activities".   The  Statement  will  require  the  Company  to
         recognize  all  derivatives  on the balance  sheet at fair value.  This
         statement is effective for fiscal years  beginning after June 15, 2000,
         and has been adopted by the Company for the year ending  September  30,
         2000.  The  adoption of this  Statement  does not have an effect on the
         Company's revenues and earnings, as the Company currently does not have
         any derivative instruments.

         In March 2000, the FASB released Interpretation No.44, " Accounting for
         Certain Transactions Involving Stock Compensation." This Interpretation
         addresses  certain  practice  issues related to APB Opinion No.25.  The
         provisions  of this  Interpretation  are effective  July 1, 2000,  and,
         except for  specific  transactions  noted in  paragraphs  94-96 of this
         Interpretation, shall be applied prospectively to new awards, exchanges
         of awards in business  combinations,  modifications  to an  outstanding
         award,  and  exchanges  in grantee  status  that occur on or after that
         date.

         Certain  events and  practices  covered in  Interpretation  No. 44 have
         different application dates, and events that occur after an application
         date  but  prior  to  July  1,  2000,  shall  be  recognized  only on a
         prospective  basis.  Accordingly,  no  adjustment  shall  be made  upon
         initial  application of the Interpretation to financial  statements for
         periods prior to July 1, 2000.  Thus,  any  compensation  cost measured
         upon initial  application of this  Interpretation that is attributed to
         periods prior to July 1, 2000 shall not be recognized.  The Company has
         adopted the  provisions of this  Interpretation  starting July 1, 2000.
         The Company  recognized  compensation  expense of $42,250 during fiscal
         year 2000 as a result of adopting this Interpretation.

                                       18
<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


1.       Organization and Summary of Significant Accounting Policies (continued)

         Reclassifications

         Certain   reclassifications  have  been  made  to  the  1999  financial
         statements to conform to the 2000 presentation.


2.       Financial Results and Liquidity

         The Company has incurred net losses of $1,891,199 in 2000. In addition,
         the Company has a  stockholders'  deficit of $1,977,040 in 2000,  and a
         working capital  deficit of $1,977,914 as of September 30, 2000.  These
         factors,  among  others,  raise  substantial  doubt about the Company's
         ability to continue as a going concern.

         During  1999,  the  Company  sold its  unprofitable  Cable and  MotoSat
         Divisions,  and during 2000, the Company sold its PowerStream  Division
         and entered into a voluntary  foreclosure of its InCirT  Division.  The
         Company's current operations  continue to generate operating losses and
         continue to use rather than provide  cash flow.  The Company has issued
         preferred  stock,  debentures and increased other borrowings to provide
         working  capital to help meet current  obligations.  The Company  still
         currently does not generate  enough cash to fund operations and service
         its debt requirements.

         The Company  plans to seek a strategic  merger with  another  operating
         company,  and its  efforts  are  focused  primarily  on sale or  merger
         opportunities.

         While the Company  continues to seek additional  equity capital,  there
         can  be  no  assurance   that  the  Company  will  be   successful   in
         accomplishing  its  objectives.   Without  an  infusion  of  additional
         capital,  there is  substantial  doubt about the  Company's  ability to
         continue as a going  concern.  The financial  statements do not include
         any adjustments that might be necessary should the Company be unable to
         continue as a going concern.

                                       19


<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


3.       Disposition of Operating Divisions

         Cable Division

         Effective  January 31, 1999, the Company sold  substantially all of the
         assets and certain of the  liabilities  of its Cable Division to Cables
         To Go, Inc (CTG).  Net assets of $2,732,059 were sold for $1,075,000 in
         cash and a royalty  payment  contingent upon the future revenues of the
         Cable Division.  $150,000 of the royalty payment was guaranteed and has
         been recorded by the Company as a note  receivable from CTG. CTG agreed
         to use and compensate the Company for an additional $558,747 of the net
         assets contingent upon certain operating needs. The Company  originally
         recorded a loss of $948,312 upon disposition of the Cable Division, but
         has adjusted the loss to $1,507,059 based on its present  determination
         that CTG will not use or  compensate  the  Company  for the  additional
         $558,747 of net assets.

         The note  receivable  of $150,000 and the  royalties due to the Company
         from the sale of the Cable  Division  were assigned by the Board to the
         Company's  founder and former Board Chairman in order to compensate him
         for  the   termination   of  his   management   contract  and  deferred
         compensation agreement when he agreed to step aside from the management
         of the Company.  This agreement was reached in December 1999 as part of
         an overall settlement agreement of claims.


         MotoSat Division

         Effective September 30, 1999, the Company sold substantially all of the
         assets and liabilities of its MotoSat Division to James Pendleton,  the
         Company's former CEO and Chairman.  The net assets of $68,438 were sold
         in  exchange  for Mr.  Pendleton's  agreement  to  waive  any  claim to
         post-employment,  deferred  compensation,  or retirement benefits.  The
         Company  recognized a loss of $68,438 upon  disposition  of the MotoSat
         Division.


                                       20

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


3.       Disposition of Operating Divisions (continued)

         PowerStream Division

         Effective  January 21, 2000, the Company sold  substantially all of the
         assets and liabilities of its  PowerStream  Division to Lund Instrument
         Engineering,  Inc. The net liabilities of ($110,954) were sold for cash
         of $75,689 plus  royalties  ranging from 8% to 16% of the gross profits
         generated  by the sale of certain  products for a period of three years
         subsequent  to the sale  subject to certain  adjustments.  The  Company
         recognized a gain of $186,643 upon the  disposition of the  PowerStream
         Division.  Cash  proceeds were used to pay down a note due to a secured
         lender.


         InCirT Division

         The  Company  had  been  operating  under a  default  notice  with  its
         asset-based  lender,  Finova  Capital,  since  September 1999, when the
         Company   began  seeking   buyers  for  its  two  remaining   divisions
         PowerStream  and InCirT.  In February  2000, a Letter of Intent to sell
         the InCirT Division to another  contract  manufacturer  was terminated.
         The Company  solicited a competitor  to purchase most of the assets and
         to negotiate a supplier agreement with the Company's largest account as
         part of a  voluntary  foreclosure  of all the  remaining  assets of the
         division,  for which  Finova had a  perfected  security  interest.  The
         Company  recognized  a loss of  $963,027  upon the  foreclosure  of the
         InCirT Division.


4.       Concentrations

         Financial   instruments  that   potentially   subject  the  Company  to
         concentration  of credit risk include  cash  deposits in excess of FDIC
         limits and short-term investments.  The Company restricts investment of
         cash balances to financial institutions with high credit standing.

                                       21


<PAGE>
                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


5.       Notes Receivable

         There  were  no  notes  receivable  as of  September  30,  2000.  Notes
         receivable as of September  30, 1999,  consist of the following and are
         all included in Assets from Discontinued Operations:

<TABLE>
<CAPTION>
                                                                                      1999
                                                                                -------------------
                                                                                --- ---------------
<S>            <C>                                                              <C>
               8% note receivable due on June 30, 2000 with monthly
               interest-only payments; unsecured                                 $        552,612

               Note receivable from a company, due in monthly payments as
               determined by a royalty agreement; secured by a royalty
               agreement                                                                  150,000

               Note receivable due on demand following the registration of
               certain shares of the Company's stock; unsecured
                                                                                           22,500
                                                                                --- ---------------
                                                                                --- ---------------

                                                                                          725,112

               Less current maturities                                                   (575,112)
                                                                                --- ---------------
                                                                                    ---------------
                                                                                 $        150,000
                                                                                === ===============
</TABLE>


6.       Inventory

           Inventory for the period ended September 30, 1999,  which is included
           in Assets from Discontinued Operations, consisted of the following:

<TABLE>
<CAPTION>
<S>                                                             <C>
                          Raw material                          $        3,253,574
                          Work-in-process                                1,507,108
                          Finished goods                                    59,315
                                                                -- ------------------
                                                                -- ------------------

                                                                         4,819,997

                           Less allowance for obsolete
                          inventory                                       (569,336)
                                                                -- ------------------
                                                                -- ------------------

                                                                $        4,250,661
                                                                == ==================
</TABLE>

           There is no inventory as of September 30, 2000.

                                       22

<PAGE>

                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999



7.       Foreclosure

         The  Company  entered  into a  financing  agreement  with  a  bank  for
         $6,300,000.  The agreement  consisted of a $5,000,000  revolving credit
         line and two term  loans  for  $800,000  and  $500,000.  Under the loan
         agreements  for these  loans,  the Company was required to meet certain
         financial ratios and specific minimum levels of earnings and net worth.
         The  loan  agreements  also  restricted   employee  advances,   capital
         expenditures, compensation, and additional indebtedness; and restricted
         the payment of dividends. The Company had borrowed $4,436,562 under the
         line of credit at September 30, 1999. At times,  including at September
         30, 1999, the Company had been in violation of certain of the covenants
         of this credit  facility.  The  Company  operated  under a  forbearance
         agreement during all of fiscal 1999.

         As of September  30,  1999,  the Company had not received a waiver from
         the lender and all obligations  under this credit facility were payable
         on demand of the lender and were  classified as current  liabilities in
         the  balance  sheet.  Subsequent  to  September  30,  1999,  the lender
         declared the loan agreement in default.

         The Company continued  operating under a default notice with its lender
         and began seeking  buyers for its two remaining  divisions  PowerStream
         and InCirT.  The Company solicited a competitor to purchase most of the
         assets and to negotiate a supplier agreement with the Company's largest
         account as part of a voluntary  foreclosure of all the remaining assets
         of the  InCirT  Division  of the  Company,  for which its  Lender had a
         perfected security interest.  The Company's  September 30, 2000 balance
         sheet reflects the transfer of all collateral assets to its Lender, and
         the  Company  has  recognized  an offset of the  bank's  line of credit
         balance and term loans owed by the Company. The Company recorded a loss
         on transfer of assets of $963,027.

         The bank line of credit has a remaining  balance  due of  approximately
         $1,400,000  that  is not  recorded  in the  financial  statements,  and
         remaining  estimated  assets to  collect of  approximately  $2,400,000,
         which are also not recorded in the financial statements. The Company is
         currently  negotiating an agreement  with the lender,  which it expects
         will result in complete  satisfaction  of all the loans with the lender
         in exchange for the assets the lender  currently has in its possession.
         The draft  agreement  also includes the  repricing of certain  warrants
         that the Company has issued to the lender and the issuance of a certain
         number of additional warrants to the lender.


                                       23

<PAGE>

                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


8.       Note Payable and Convertible Debenture

         Long-term obligations consist of the following:

<TABLE>
<CAPTION>
                                                                            2000                   1999
                                                                     -------------------    -------------------
      Non-interest-bearing note, payable in 12 monthly
      installments of $74,509, collateralized by inventory
<S>                                                                  <C>                    <C>
                                                                     $                -     $          844,104

      Non-interest-bearing note, payable in 12 monthly
      installments of $51,280, collateralized by inventory
                                                                                      -                415,366

      10.32% note to a financial institution, payable in 48 monthly installments
      of $10,417 plus interest,  due on demand,  collateralized by substantially
      all of the Company's  property and  equipment  and personal  guarantees of
      certain officers of the Company
                                                                                      -                214,579

      7.50% note, due on demand                                                  56,648                 13,617

      Non-interest-bearing note, due in October 1999                                  -                100,000

      10.16% note to a financial institution, payable in 48 monthly installments
      of $16,667 plus interest,  due on demand,  collateralized by substantially
      all of the Company's
      property and equipment                                                          -                 79,992

      Non-interest-bearing note to a parts vendor                                     -                 11,720

      11.25% note to a financial institution, past due                                -                  3,100

      7% convertible debenture, interest only, due August 2001
                                                                                150,000                      -
                                                                     --- ---------------    --- ---------------

                                                                                206,648              1,682,478

      Less current maturities                                                 (206,648)            (1,682,478)
                                                                     --- ---------------    --- ---------------

      Total Long Term Debt                                           $                -     $                -
                                                                     === ===============    === ===============

</TABLE>
                                       24
<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


8.       Note Payable and Convertible Debenture (continued)

         In August  2000,  the  Company  entered  into a  convertible  debenture
         agreement  for  $600,000  in  exchange  for  4,000,000  shares  of  the
         Company's common stock. This agreement consists of three  installments:
         $150,000 upon the signing of the agreement; $150,000 upon the submittal
         of the registration documents;  and $300,000 upon the completion of the
         registration of the debenture. The first installment was received prior
         to September 30, 2000. The  convertible  debenture has an interest rate
         of 7% per annum.  The  Company is  currently  preparing  the  necessary
         documents to register the debenture.  The debenture is convertible into
         common  stock at the  lesser of $0.15  per  share or 70% of the  market
         price on the conversion date.


9.       Long-Lived Assets

         On an ongoing  basis,  management  reviews the  valuation of long-lived
         assets,  including  intangible assets, to determine possible impairment
         by comparing the carrying value to the  undiscounted  estimated  future
         cash flows of the related assets and necessary adjustments, if any, are
         recorded. Based upon operating losses from certain divisions, continued
         cash flow  problems and  managements  decision to negotiate the sale of
         other  divisions,  the Company reduced the carrying costs of certain of
         its long-lived  assets by $2,598,894 in 1999.  During 2000, the Company
         reserved the advances it made to  perFORMplace.com,  which  amounted to
         $320,500.  These  adjustments  are  made in  order  to  better  reflect
         management's current expectations for the realization of these assets.

         The following is a summary of the assets  charged-off to impairment for
         the years ended September 30:

                                          2000                    1999
                                    -----------------    --- ---------------

               Goodwill              $             -      $       1,873,935
               Notes receivable              320,500                724,959
                                    --- -------------    --- ---------------

                                     $       320,500      $       2,598,894
                                    === =============    === ===============

                                       25


<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


10.      Operating Leases

         The Company rents office and warehouse space on a monthly basis.  There
         are no long-term lease commitments.


11.      Discontinued Operations

         With the sale of its Cable and  MotoSat  Divisions  during 1999 and the
         sale of the  PowerStream  Division  and the  foreclosure  of its InCirT
         Division  in  2000  (See  Footnotes  3 and  7),  all of  the  operating
         divisions  of  the  Company  have  been   classified  as   discontinued
         operations.

         Following is a summary of the operating  activity and the  discontinued
assets and liabilities of these operations:

<TABLE>
<CAPTION>
                                                      2000                     1999
                                               --------------------    ----------------------
               Revenues:
<S>                                              <C>                     <C>
               InCirT Division                   $       6,674,900       $        15,516,431
               Cable Division                                    -                 1,052,538
               Other divisions                              50,489                 1,082,869
                                               ---- ---------------    ---- -----------------
                                                 $       6,725,389       $        17,651,838
                                               ==== ===============    ==== =================

               Gross Profit:
               InCirT Division                   $       1,160,301       $           936,420
               Cable Division                                    -                     7,888
               Other divisions                              17,818                    39,240
                                               ---- ---------------    ---- -----------------
                                                 $       1,178,119       $           983,548
                                               ==== ===============    ==== =================


               Identifiable Assets:
               InCirT Division                   $           9,605       $         8,137,540
               Cable Division                                    -                         -
               Other divisions                                   -                   386,091
                                               ---- ---------------    ---- -----------------

                                                 $           9,605       $         8,523,631
                                               ==== ===============    ==== =================
</TABLE>


                                       26

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


11.      Discontinued Operations (continued)

<TABLE>
<CAPTION>
                                                      2000                     1999
                                               --------------------    ---------------------
               Identifiable Liabilities:
<S>                                            <C>                     <C>
               InCirT Division                 $         (864,791)     $        (5,398,446)
               Cable Division                                   -                       -
               Other divisions                                  -                 (524,194)
                                               --- ----------------    --- -----------------

                                               $         (864,791)     $        (5,922,640)
                                               === ================    === =================
</TABLE>


         The assets and liabilities  from  discontinued  operations are noted as
follows:


<TABLE>
<CAPTION>
                                                                          2000                 1999
                                                                     ----------------    ------------------
   Assets from Discontinued Operations
<S>                                                                  <C>                 <C>
        Cash                                                         $             -     $             914
        Accounts Receivable                                                        -             2,717,583
        Inventory                                                                  -             4,191,346
        Other Assets                                                               -                59,315
        Prepaid Expenses                                                       9,605                18,587
        Property, Plant & Equipment, Net                                           -             1,535,886
                                                                     ---- -----------    --- --------------

           Total Assets from Discontinued Operations                 $         9,605     $       8,523,631
                                                                     ==== ===========    === ==============


   Liabilities from Discontinued Operations
        Accounts Payable                                             $       864,791     $       3,650,111
        Employee Payable                                                           -                55,198
        Lease Liability                                                            -                 8,754
        Accrued Liabilities                                                        -               205,232
        Notes Payable                                                              -             1,787,345
        Unearned Revenue                                                           -               216,000
                                                                     ---- -----------    --- --------------

           Total Liabilities from Discontinued Operations            $       864,791     $       5,922,640
                                                                     ==== ===========    === ==============
</TABLE>

                                       27


<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


12.      Related Party Transactions During Fiscal Year 2000

         Stephen J. Fryer, Chairman, CEO, President and Chief Accounting Officer
         received  options for 300,000 shares in March 2000 and another  300,000
         shares in June 2000.

         Milton Haber and Brian Bonar,  both Directors of the Company,  received
         100,000  warrants  each in March  2000 for their  continued  service as
         members of the board of directors.

         Brian Bonar has been a Director of the Company  since  January 2000 and
         is also Chairman of the Board at Itec. As of the foreclosure date, Itec
         owed the Company $850,000 for services performed by InCirT.

         Stephen J. Fryer  accepted a  Directors'  position  on Itec's  Board in
         March 2000.

         Former  officers and board  members,  James  Pendleton and Wayne Wright
         reached a modified  settlement with the Company,  per their  management
         and deferred  income  contracts,  by each accepting  250,000  warrants,
         priced at $0.65 per share and 376,000  shares of common  stock in place
         of monetary payments.


13.      Stockholders' Equity

         Preferred Stock Dividends in Arrears Deferred

         Payments  of annual  dividends  for 2000 and 1999 were  deferred by the
         Company's Board of Directors on the outstanding preferred stock because
         of losses sustained by the Company. As of September 30, 2000, preferred
         dividends in arrears amounted to $555,193 on the Preferred Stock Series
         A and B.


         Conversion of Convertible Preferred Stock - Series A

         In 2000, the Company converted 1,670 shares of Preferred Stock Series A
         into  9,057,654  shares  of common  stock,  and the  Company  converted
         $64,581 of dividends  payable on these  shares of Preferred  Stock into
         349,323 shares of common stock.


                                       28
<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


13.      Stockholders' Equity (continued)

         Conversion of Convertible Preferred Stock - Series B

         In 2000,  the Company  converted 74 shares of Preferred  Stock Series B
         into 411,112 shares of common stock.


         Conversion of Preferred Stock - Series A Warrants

         In 2000, the Company converted warrants to purchase shares of Preferred
         Stock  Series A into  315,000  shares  of  common  stock in a  cashless
         exercise,  and the Company  recorded an expense of $86,942 based on the
         fair value of the common stock on the date of conversion.


         Common Stock Reserved for Future Issuance

         At September 30, 2000,  the Company has reserved  270,000 shares of its
         authorized but unissued common stock for possible future  issuances for
         ISOs in connection with its Stock Option Plan.


         Repricing of Stock Options

         In order to  continue  to attract  and retain  employees,  the Board of
         Directors  authorized the repricing of options and warrants to purchase
         shares of common stock  effective  March 2000,  to the then fair market
         value of $0.30 per share.  All  repriced  options  maintained  the same
         expiration  terms.  Approximately  1,240,000  options and warrants were
         repriced  under this  program.  The repricing  included  members of the
         Board of Directors and executive officers.


                                       29

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


13.      Stockholders' Equity (continued)

         Grant of Equity Interest in Full Settlement of Trade Payable and
         Troubled Debt

         Due to  significant  cash  flow  problems,  in April  2000 the  Company
         commenced  on a program to reach  agreements  with its vendors to grant
         shares of its common  stock to the  vendors in full  settlement  of the
         amounts due the  vendors.  At the date of  issuance of the shares,  the
         amounts due vendors  exceeded the fair market value of the common stock
         issued  by  $2,018,547,   which  is  classified  in  the  statement  of
         operations as an extraordinary  gain due to the  extingushment of debt.
         As of September 30, 2000,  the Company has issued  1,061,747  shares of
         its common stock under this program.


14.      Preferred Stock and Convertible Debenture

         Preferred Stock

         The Company issued two series of Preferred  Stock.  Series A was issued
         in February 1999 consisting of 1,800 shares, par value $0.01 per share,
         for  $1,000  per  share.  Series B was issued in March 1999 at the same
         price but only 1,000 shares were issued.  Part of the funds raised from
         the  issuance  of this stock  were used to repay the bridge  loans made
         earlier in the fiscal  year.  After  repayment  of the bridge loans and
         paying  $238,500  in fees  and  expenses,  the net cash  raised  by the
         Company for operations was  $1,665,500.  Both series of Preferred Stock
         carry a 16 percent dividend rate,  which is paid quarterly,  and have a
         liquidation value of $1,000 per share.

         Both issuances of Preferred  Stock are  convertible  into shares of the
         Company's  Common  Stock.  Each  share of Series A  Preferred  Stock is
         convertible  into an amount of shares  of the  Company's  Common  Stock
         equal to $1,000  divided by the  average of the two lowest  closing bid
         prices  for  the  Company's  Common  Stock  during  the  period  of  22
         consecutive  trading  days ending with the last  trading day before the
         date of conversion,  after  discounting that market price by 15 percent
         (the  "Conversion  Price").  During the first six months,  the Board of
         Directors  approved a reduction of the maximum Conversion Price for the
         Series A  Preferred  Stock and  Series B  Preferred  Stock to $.53 from
         $1.17 and $.79 per share  respectively.  The  reduction  was granted to
         obtain a waiver in relation to the

                                       30
<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


14.      Preferred Stock and Convertible Debenture (continued)

         Preferred Stock (continued)

         sale of a major  asset - InCirT  Technologies  division.  The shares of
         Series B Preferred Stock are convertible  into Common Stock at the same
         Conversion Price as the Series A Preferred  Stock.  Warrants to acquire
         335,453 shares of Common Stock at conversion  prices ranging from $0.86
         to $1.434 per share were also issued to the  purchasers of the Series A
         and Series B Preferred  Stock. The Warrants expire three years from the
         date the Preferred Stock and Warrants were initially issued.


         Convertible Debentures

         On October 22, 1997, the Board of Directors of the Company approved the
         issuance of up to $1,500,000 of 3 percent convertible debentures with a
         maximum term of 24 months.  On June 16, 1998, the Board of Directors of
         the Company  approved the issuance of up to  $1,000,000  of  additional
         three percent convertible  debentures with a maximum term of 24 months.
         The convertible  debentures (the "Debentures")  mature,  unless earlier
         converted by the  holders,  into shares of common stock of the Company.
         The  Company  filed a  registration  statement  with the United  States
         Securities and Exchange  Commission with respect to the common stock of
         the Company into which the Debentures may be converted.

         The Debentures were  convertible by the holders thereof into the number
         of shares of common  stock equal to the face  amount of the  Debentures
         being  converted  divided  by the  lesser  of (i)  eighty  percent  (80
         percent)  of the  closing bid price of the  Company's  common  stock as
         reported on the NASDAQ  Small Cap market on the day of  conversion,  or
         (ii)  $2.75.   The  Debentures   could  be  converted  in  three  equal
         installments  beginning  on the  earlier  of (i) the  75th day of their
         issuance,  and continuing  through the 135th day of their issuance,  or
         (ii)  the  day  following  the  effective  date  of  the   Registration
         Statement,  through the 60th day following  the  effective  date of the
         Registration  Statement.  The Company could cause the  Debentures to be
         converted into shares of common stock after the 110th day following the
         effective  date of the  Registration  Statement,  if the  common  stock
         traded at or above $5.50 per share for 20 consecutive days.

                                       31

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


14.      Preferred Stock and Convertible Debentures (continued)

         Convertible Debentures (continued)

         As of September  30,  1998,  the Company had issued all  $2,500,000  of
         these  convertible  Debentures  and  $1,000,000  had been  converted to
         689,332 shares of common stock. As of September 30, 1999, the remaining
         $1,500,000 of convertible  Debentures had been converted into 2,092,671
         shares of common stock.

         Because of the  favorable  conversion  feature of the  Debentures,  the
         Company has  recognized  interest  expense  relating to the price below
         market at which the  Debentures  can be converted into common shares of
         stock.  The interest is initially set up as a deferred  charge  against
         the subordinated debenture balance with an offset to additional paid-in
         capital. The deferred interest is amortized over a period corresponding
         to time  restrictions  as to when the  Debentures can be converted into
         stock. The resulting charge to interest expense increases the effective
         interest rate of the Debentures.  Deferred interest expense of $250,032
         was  recorded on the  $1,000,000  in  Debenture  issue  relative to the
         favorable  conversion  feature and was  amortized  over four months and
         charged to interest  expense.  Amortization  of the  $250,032  deferred
         charge totaled  $98,571 in fiscal 1999 ($151,461 in fiscal 1998).  This
         interest,  along  with  the  stated  3  percent  interest  rate  in the
         Debentures, results in an inherent interest rate of 31 percent.

         In connection with the $1,500,000 Debenture issue, the Company recorded
         $389,591  of  deferred  interest  expense  related  to  the  beneficial
         conversion  feature.  The  entire  deferred  charge was  amortized  and
         charged to interest  expense as of September  30, 1998.  This  interest
         when  added to the  stated 3  percent  interest  rate of the  Debenture
         results in an inherent interest rate of 28 percent.


15.      Stock Options and Warrants

         The Company has a Stock Option Plan (the Plan).  The Plan  provides for
         the granting of both Incentive  Stock Options (ISOs) and  Non-qualified
         Stock  Options  (NSOs) to  purchase  shares of common  stock.  ISOs are
         granted  at not less than  market  value on the date of grant,  whereas
         NSOs may be granted at not less than 85 percent of the market  value on
         the date of the grant. Options may be granted

                                       32
<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


15.      Stock Options and Warrants (continued)

         under  the  Plan  to all  officers,  directors,  and  employees  of the
         Company. In addition,  NSOs may be granted to other parties who perform
         services  for the  Company.  The Board of  Directors  has also  granted
         management  the authority to issue  non-statutory  stock options and/or
         warrants to employees and consultants of the Company.

         As of September 30, 2000 and 1999, the Company granted to its employees
         and other eligible  participants  options and warrants  exercisable for
         the Company's common stock and preferred stock. Options and warrants to
         purchase  shares of its common stock are usually  granted at the prices
         equal to the current fair market value of the Company's common stock as
         of the date of grant.

         Under the Plan, no option may be exercised after the expiration date of
         ten years from the date of grant.  As of September 30, 2000,  there are
         two types of convertible securities (NSOs and Warrants) outstanding.

         NSOs may be granted to any eligible  participant  as  determined by the
         management of the Company.

         Stock  options and warrants  issued as of September  30, 2000 and 1999,
         are summarized as follows:

<TABLE>
<CAPTION>
                                                      2000                              1999
                                         -------------------------------    ------------------------------
                                                              Average                           Average
                                                             Exercise                          Exercise
                                             Shares            Price           Shares            Price
                                         ---------------    --- --------    --------------    --- --------
<S>                                         <C>              <C>               <C>             <C>
   Outstanding at beginning of year         11,086,667       $     2.45        8,070,000       $     3.88
   Granted                                   2,464,655             0.36        6,131,667             0.56
   Exercised                                (4,231,668)            0.16       (1,783,750)            0.43
   Forfeited/Cancelled                        (810,000)            2.45       (1,331,250)            1.52
                                         ---------------                    --------------

   Outstanding at end of year                8,509,654       $     3.28       11,086,667       $     2.45
                                         ===============    === ========    ==============    === ========

   Exercisable at end of year                8,502,154       $     3.28       10,791,767       $     2.49
                                         ===============    === ========    ==============    === ========
</TABLE>

                                       33

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


15.      Stock Options and Warrants (continued)

         The non-statutory  stock options and warrants are for periods of two to
         five  years.  All options  and  warrants to purchase  shares were fully
         vested as of September 30, 2000.

         Under APB-25, the cost of compensation is measured by the excess of the
         fair market  value of the stock over the option  exercise  price on the
         measurement  date.  This is referred to as the intrinsic  value method.
         Accordingly,  the Company recorded compensation expense of $339,822 and
         $769,125 for options and warrants  granted  below the fair market value
         of the  stock on the date of grant for the years  ended  September  30,
         2000 and 1999.

         The following table summarizes  information  about options and warrants
outstanding at September 30, 2000:

<TABLE>
<CAPTION>
                                                                         Weighted
                                                     Weighted            Average               Number
                                                     Average            Remaining        Exercisable as of
                                   Number         Exercise Price       Contractual       September 30, 2000
          Exercise Prices       Outstanding         per Share          Life (Years)
        --------------------    -------------    -----------------    ---------------    -------------------
<S>        <C>         <C>         <C>           <C>                            <C>               <C>
           $     0.01 -0.20        2,074,201     $           0.06               0.65              2,074,201
                 0.21 -0.30        2,067,500                 0.30               4.27              2,060,000
                0.31 - 1.00          921,953                 0.86               3.69                921,953
                1.01 - 2.00          585,000                 1.85               4.96                585,000
                2.01 - 3.00           11,000                 2.71               1.13                 11,000
                3.01 - 6.50        2,850,000                 6.50               0.09              2,850,000
                                -------------                                            -------------------
                                   8,509,654                                                      8,502,154
                                =============                                            ===================
</TABLE>

         The exercise periods for the options range from immediate to four years
         from the date of the grant and have various vesting requirements.

         The Company has adopted only the disclosure provisions of SFAS No. 123.
         It applies APB Opinion No. 25 and related interpretations in accounting
         for its stock  options and warrants  granted to employees or to members
         of the Company's Board of Directors.  The Company applies provisions of
         SFAS No.  123 for  options  and  warrants  granted  to  third  parties.
         Accordingly,  compensation  cost  has  been  recognized  for its  stock
         options and warrants granted to outside third parties.

                                       34


<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


15.      Stock Options and Warrants (continued)

         If the Company had elected to recognize compensation expense based upon
         the fair value at the grant date for awards under this plan  consistent
         with the methodology prescribed by SFAS No. 123, the Company's net loss
         and  loss  per  share  would  be  increased  to the pro  forma  amounts
         indicated below for the years ended September 30:

<TABLE>
<CAPTION>
                                                      2000                    1999
                                               --------------------    -------------------
                    Net Loss:
<S>                                             <C>                    <C>
                          As reported           $      (1,891,199)     $     (12,014,792)
                          Pro forma             $      (1,966,130)     $     (13,175,657)

                    Basic and diluted loss per common share:
                          As reported:
                              Basic             $           (0.10)     $           (1.82)
                              Diluted           $           (0.10)     $           (1.82)
                          Pro forma:
                              Basic             $           (0.11)     $           (1.99)
                              Diluted           $           (0.11)     $           (1.99)
</TABLE>

         The fair  value of these  options  was  estimated  at the date of grant
         using  the  Black-Scholes   option-pricing  model  with  the  following
         weighted-average  assumptions:  2000:  dividend  yield of 0%;  expected
         volatility of 200%;  risk-free interest rate of 5.6%, and expected life
         of 2 to 5 years;  1999:  dividend yield of 0%;  expected  volatility of
         132%;  risk-free  interest rate of 5.5%, and expected life equal to the
         actual life for the period. The weighted-average  fair value of options
         and   warrants   granted  was  $0.27  and  $0.33  for  2000  and  1999,
         respectively.

         The  Black-Scholes  option  valuation  model was  developed  for use in
         estimating  the fair  value of traded  options,  which  have no vesting
         restrictions and are fully transferable.  In addition, option valuation
         models require the input of highly subjective assumptions including the
         expected stock price volatility.  Because the Company's  employee stock
         options  have  characteristics  significantly  different  from those of
         traded options, and because changes in the subjective input assumptions
         can materially affect the fair value estimate, in management's opinion,
         the  existing  models  do not  necessarily  provide a  reliable  single
         measure of the fair value of its stock options.

                                       35

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


16.      Earnings (Loss) Per Share

         Fully diluted loss per share, both net loss and shares outstanding have
         been adjusted for warrants and options outstanding.

         Per share data is based on the weighted average number of the Company's
         common shares and common share equivalents. The number of common shares
         and common share equivalents used in the loss per share calculation are
         as follows:

<TABLE>
<CAPTION>
                                                           2000                  1999
                                                     ------------------    ------------------
<S>                                                  <C>                   <C>
                Common stock
                     Average number of shares
                     Outstanding                            18,556,461             7,133,344

                Dilutive securities:
                Preferred stock, Series A and B
                     average number of shares
                     outstanding                                     -                     -

                Convertible debenture                                -                     -

                Common stock equivalents
                     due to assumed exercise
                     of options and warrants                         -                     -
                                                     --- --------------    -- ---------------

                Total shares - diluted                      18,556,461             7,133,344
                                                     === ==============    == ===============
</TABLE>

         The  following  data shows the amounts used in  computing  net loss per
         common  share,  including  the effect on net loss for  preferred  stock
         dividends and a beneficial conversion feature associated with preferred
         stock.  For 1999,  net loss  applicable  to  common  stock  includes  a
         non-cash imputed dividend to the preferred  stockholders related to the
         beneficial  conversion  feature on the Series A and Series B  preferred
         stock. The beneficial  conversion feature is computed as the difference
         between  the market  value of the common  stock into which the Series A
         and Series B preferred stock can be converted and the value assigned to
         the Series A and Series B preferred stock in the private placement. The
         imputed  dividend is a one-time,  non-cash  charge against the net loss
         per common share.


                                       36



<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


16.      Earnings (Loss) Per Share (continued)

<TABLE>
<CAPTION>
                                                              2000                      1999
                                                       -------------------    -------------------------

<S>                                                    <C>                    <C>
        Net loss                                       $      (1,891,199)     $           (12,014,791)

        Dividends on preferred stock                            (289,809)                    (265,384)

        Imputed dividends from beneficial
        conversion feature                                              -                    (722,832)
                                                       -- ----------------    -- ----------------------

        Loss applicable to common stock                $      (2,181,008)     $           (13,003,007)
                                                       == ================    == ======================
</TABLE>


         For the years ended September 30, 2000 and 1999, all of the options and
         warrants that were  outstanding  were omitted from the  computation  of
         diluted EPS since including them would have been anti-dilutive.


17.      Income Taxes

         Income tax expense (benefit) from continuing operations consists of the
following:

                                               2000                1999
                                          --------------    ------------------

                          Current
                               Federal     $          -      $              -
                               State                900                     -
                                          -- -----------    --- --------------

                                                    900                     -


                          Deferred
                               Federal                -               518,265
                               State                  -                82,971
                                          -- -----------    --- --------------

                                                      -               601,236
                                          -- -----------    --- --------------

                                           $        900      $        601,236
                                          == ===========    === ==============


                                       37

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


17.      Income Taxes (continued)

         Reconciliation  of  income  taxes  (benefit)  computed  at the  federal
statutory rate of 34 percent is as follows:

<TABLE>
<CAPTION>
                                                                2000                   1999
                                                          ------------------    --------------------
<S>                                                       <C>                   <C>
             Federal income taxes (benefit) at
             statutory rate                               $       (568,743)     $       (3,880,608)
             State income taxes  (benefit), net of
             federal tax benefit                                  (147,873)               (537,932)
             Permanent differences                                       -                   4,842
             Increase in valuation allowance                       717,516               5,014,934
                                                          --- --------------    --- ----------------

             Income taxes                                 $            900      $          601,236
                                                          === ==============    === ================



         Deferred tax assets and liabilities consist of the following:

                                                               2000                    1999
                                                        --------------------    --------------------
        Deferred tax assets (liabilities)
               Depreciation and amortization            $                -      $          763,404
               Net operating loss                                7,954,332               5,619,324
               Reserve for inventory
                  obsolescence                                           -                 220,442
               Allowance for doubtful accounts                           -                 732,014
               Impairment of note receivable                       137,302                       -
               Reserve for vacation                                      -                  38,934
                                                        --- ----------------    --- ----------------

               Deferred tax asset                                8,091,634               7,374,118

               Valuation allowance                              (8,091,634)             (7,374,118)
                                                        --- ----------------    --- ----------------

               Net deferred tax asset                   $                -      $                 -
                                                        === ================    === ================

</TABLE>
                                       38

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


17.      Income Taxes (continued)

         The  Company  sustained  net  operating  losses in each of the  periods
         presented.  For 2000 and 1999,  there  were no  deferred  tax assets or
         income  tax  benefits  recorded  in the  financial  statements  for net
         deductible  temporary  differences or net operating loss  carryforwards
         because the  likelihood  of  realization  of the  related tax  benefits
         cannot be fully  established.  A valuation  allowance of $8,091,634 has
         been recorded in 2000  ($7,374,118  in 1999) to reduce the net deferred
         tax assets to their estimated net realizable value.

         As  of  September  30,  2000,   the  Company  had  net  operating  loss
         carryforwards for tax reporting  purposes of approximately  $16,175,000
         expiring in various years through 2020.


                                       39

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


18.      Summarized Quarterly Information (Unaudited)

         Following is a summary of quarterly results of operations for the years
         ended September 30, 2000 and 1999. These amounts have been restated for
         discontinued operations:

<TABLE>
<CAPTION>
                                                           Three months ended
                              ------------------------------------------------------------------------------
Fiscal 2000                       Dec 31              March 31             June 30             Sept 30
-----------
                              ----------------    -----------------    ----------------    -----------------
<S>                           <C>                 <C>                  <C>                 <C>
Net Sales                     $            -      $             -      $            -      $             -
Gross Profit (loss)                        -                    -                   -                    -
Operating loss from
 continuing operations              (206,160)            (780,492)           (709,435)            (939,448)
Loss from discontinued
  operations                        (324,069)            (881,263)           (144,053)              851,558
                              -- -------------    -- --------------    -- -------------    -- --------------
Net loss                      $     (530,229)     $    (1,661,755)     $     (853,488)     $       (87,890)
                              == =============    == ==============    == =============    == ==============
Loss per share from
  continuing operations
  - basic and diluted         $         (.02)     $          (.06)     $         (.04)     $       (0.0221)

Gain (Loss) per share from
discontinued operations -
basic and diluted
                              $         (.03)     $          (.06)     $             -     $         0.0213

Gain per share from
extraordinary item - basic
and diluted                   $             -     $              -     $             -     $         0.1088



Fiscal 1999                       Dec 31              March 31             June 30             Sept 30
-----------
                              ----------------    -----------------    ----------------    -----------------
Net Sales                     $            -      $            -       $           -       $            -
Gross Profit (loss)                        -                   -                   -                    -
Operating loss from
 continuing operations              (327,333)          (1,065,218)           (396,880)          (1,521,395)
Loss from discontinued
  operations                         (917,902          (1,333,308)           (319,355)          (6,133,400)
                              -- -------------    -- --------------    -- -------------    -- --------------
Net loss                      $   (1,245,235)     $    (2,398,526)     $     (716,235)     $    (7,654,795)
                              == =============    == ==============    == =============    == ==============
Loss per share from
  continuing operations
   - basic and diluted        $         (.06)     $          (.22)     $         (.10)     $          (.19)
Loss per share from
  discontinued operations
  - basic and diluted         $         (.16)     $          (.24)     $         (.09)     $          (.76)

</TABLE>
                                       40

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


18.      Summarized Quarterly Information (Unaudited) (continued)

         The fiscal 2000 amounts  include  certain  significant  fourth  quarter
         adjustments  including  asset  impairment  charges of $320,500,  and an
         increase to the estimate of expense related to claims and litigation of
         $135,300.

         The fiscal 1999 amounts  include  certain  significant  fourth  quarter
         adjustments  including  asset  impairment  charges  of  $1,873,935,  an
         increase to the allowance for doubtful accounts of $1,434,693,  expense
         related  to  the  issuance  of  certain   stock  options  of  $769,125,
         additional  loss on sale of divisions  of $558,747,  an increase to the
         allowance for obsolete inventory of $496,371, a write-down of inventory
         based on resetting  standard costs of $251,981,  and income tax expense
         relating to an increase in the deferred tax asset  valuation  allowance
         of $217,740.


19.      Commitments and Contingencies

         Employment Agreement

         The Company has entered into an agreement  with the CEO of the Company,
         which provides for an annual salary, noted as follows:

              Year ending September 30,
                         2001                    $       $151,839
                         2002                             151,839
                      Thereafter                                -
                                               ---- --------------

                                                 $       $303,678

         The employment agreement provides for an automobile allowance.


                                       41

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


19.      Commitments and Contingencies (continued)

         Litigation

         From time to time,  the  Company  is engaged  in  various  lawsuits  or
         disputes as  plaintiff  or  defendant  arising in the normal  course of
         business.

         During the year ended  September 30, 2000 the  following  lawsuits were
         filed against the Company:

1)       On October  28, 1999 Color Savvy  Systems,  Ltd.  filed suit to recover
         $165,750 in past due uncontested  vendor  obligations.  On February 16,
         2000, Color Savvy obtained a judgment against the Company for $165,750;

2)       On  February  15,  2000,  Amistar  Corporation  filed suit  against the
         Company to recover $95,733 in uncontested past due vendor  obligations.
         On April 18, 2000,  Amistar executed  "Acceptance of Proposal to Accept
         Exchange of Debt for Capital Stock of Pen Interconnect,  Inc." However,
         this dismissal is yet to be filed with the court;

3)       On March 21, 2000 Interworks  Computer  Products,  Inc.,  filed suit to
         recover $35,771 in past due uncontested vendor obligations;

4)       In July 2000 Force  Electronics  filed suit to recover  $68,816 in past
         due uncontested  vendor  obligations.  On September 15, 2000, a Writ of
         Attachment was granted by the Court in the amount of $68,816;

5)       Control  Design  Supply/Nedco  filed suit to recover $6,788 in past due
         uncontested vendor obligations;

6)       On March 20, 2000 DHL Airways,  Inc.  obtained a judgment in the amount
         of $3,868 for past due uncontested vendor obligations.

         On November  15, 2000 Alan L. Weaver,  former CEO of Pen  Interconnect,
         Inc., obtained a judgment against the Company in the amount of $135,300
         for  breach  of  a  settlement   agreement  relative  to  Mr.  Weaver's
         employment  agreement  with  the  Company.  The  Company  has  reserved
         $135,300 as a contingent  liability  as of September  30, 2000 for this
         agreement.

                                       42

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


20.      Subsequent Events

         In  April   2000,   the   Company   signed  a  Letter  of  Intent  with
         perFORMplace.com  for a reverse merger,  which would give  perFORMplace
         82.5% of the stock in the Company in exchange  for all of the shares of
         perFORMplace. PerFORMplace would take over the operation of the Company
         and  bring  their  assets  and  business  operations,  which are in the
         entertainment services arena, into the Company. perFORMplace terminated
         this  agreement on November 8, 2000.  As of that date,  the Company had
         advanced  $383,000  to  perFORMplace,  who has  subsequently  signed  a
         promissory  note back to the Company for  repayment  of such funds with
         interest over the next two years.

         The Company  signed a  definitive  agreement  on December 18, 2000 with
         Itec.  The Company  will  acquire for stock two  subsidiaries  of Itec,
         EduAdvantage  and  Deal  Seekers.  The  transaction  requires  that the
         Company   issue   approximately   84,000,000   common  shares  for  the
         acquisition.  This merger is subject to  shareholder  ratification  and
         will require an increase in the number of authorized shares.


         Warrants and Non-Statutory Stock Options

         During the period  October 1, 2000,  to December 28, 2000,  the Company
         issued  warrants and  non-statutory  stock options to its employees and
         third  parties  allowing  them to  purchase up to  6,324,201  shares of
         common  stock.  The exercise  price of the  warrants and stock  options
         issued range from $0.025 to $0.05 per share.


         Repricing of Stock Options

         In order to  continue  to attract  and retain  employees,  the Board of
         Directors  authorized the repricing of certain  options and warrants to
         purchase  shares of common stock  effective  November  2000 to the then
         fair market  value of $0.04 or $0.05 per share.  All  repriced  options
         maintained the same expiration terms.  Approximately  1,132,000 options
         and warrants were repriced under this program.  The repricing  included
         members of the Board of Directors and executive officers.


                                       43

<PAGE>


                             Pen Interconnect, Inc.
                          Notes to Financial Statements
                           September 30, 2000 and 1999


20.      Subsequent Events (continued)

         Additional Financing

         An agreement was reached to provide a $5,000,000  equity credit line to
         the Company.  This credit line is contingent upon the registration of a
         minimum of 10,000,000 shares of Company stock that can be used as a put
         against  future  financings.   The  registration  of  these  shares  is
         contingent on the filing of the 10-K for 2000.


                                       44